Can I Pause Loan Repayments?

Overview

• How Different Types Of Personal Loans Work
• Defining Financial Hardship
• The Application Process For Assistance
• How Repayment Variations Might Affect You In The Long Term
• Your Rights Under Australian Law
• It’s Time To Take The First Step
• Frequently Asked Questions

Many people believe that personal loans come with the same “repayment holidays” typically advertised with 30-year mortgages, but that isn’t necessarily the case. For example, Red Tree Finance personal loans are capped at $5000 and come with shorter repayment terms. They’re primarily used to fund smaller purchases or services like car repairs, paying medical bills, or debt consolidation. This makes the structure for repayment relief more specific.

Repayment Variations As A Relief Option

A full “pause” of your repayments, with no accumulated interest, is rare in the personal loan industry. A more common option is a “repayment variation”, where the lender and borrower agree to a change in the terms of your loan contract. This way, your loan doesn’t become too burdensome while you deal with a crisis, and still allows you to chip away at loan repayments.

You’ve likely heard the term “financial hardship” in conversation or in the media and understood its general meaning. Within the Australian credit landscape, however, it has a specific definition. 

Financial hardship describes a situation where a borrower intends to make their loan repayments but lacks the immediate financial capacity to do so. It is not a permanent inability to pay, but rather a temporary hurdle caused by a change in circumstances.

Typical Financial Hardship Scenarios

Common situations in which you’ll potentially qualify for hardship assistance include:

• Changes in employment status: If you become redundant, experience a significant downturn in available overtime, or your employer moves you from full-time to casual hours.
• Health issues: A sudden illness or injury that leads to high medical out-of-pocket costs or puts you out of action and leaves you unable to earn an income.
• Changes to family situations: Relationship breakdowns or the loss of a family member can put a strain on household finances.  
• Surges in daily living costs: Major cost-of-living expenses that compromise your ability to meet your loan repayment agreement. 
• Natural disasters and other emergencies: Flood, earthquake or bushfire events can be financially damaging and affect your ability to repay your loan as you recover.  

If you experience any of these situations, you may be able to apply for financial hardship assistance.

If you find yourself in a position where you’re unable to meet your next scheduled loan repayment, early and proactive communication is the best way to maintain your credit score and keep default notices at bay. 

You will need to demonstrate a clear picture of your current financial standing if you wish to apply for hardship assistance. Red Tree Finance has streamlined this process to be as stress-free as possible. The three steps are as follows: 

1. Documentation: Collect evidence of your change in circumstances. Common examples include a medical certificate, a letter from your employer notifying you of your redundancy, or bank statements that show a noticeable drop in income.
2. Financial summary: Put together a basic summary of your current monthly income versus your essential shared household expenses (rent/mortgage, food, utilities).
3. Submission: You can access our dedicated Financial Hardship application form or email our care team directly at hardship@redtreefinance.com.au.

Once Red Tree Finance receives your application and documentation, our people review your information with sensitivity to determine a sustainable path forward. Possible options might include a temporary reduction in payment amounts or an extension of the loan term to reduce the weekly or fortnightly cost.

Though repayment variations can provide short-term relief in times when you’re experiencing financial hardship, it’s important to also consider their possible long-term effects – especially when it comes to the overall cost of your loan.

For example, if you were to apply for financial hardship assistance and were offered an extension to your original loan term, it could certainly reduce your weekly payments. However, you may end up paying more in interest over the life of the loan.

With any repayment variation, Red Tree Finance aims to ensure it aligns with our Target Market Determination. This means that the proposed solution must be fit for your needs and will not create further long-term financial harm. 

Rather than a quick “band-aid fix”, we aim to provide a “sustainable fix” that allows you to gradually return to your original repayment schedule without building up a mountain of debt.

Transparency and fairness are protected under the National Consumer Credit Protection Act. As a borrower, you have specific rights when you request financial relief:

• Right to a quick response: Red Tree Finance always aims to resolve all hardship assistance-related disputes within 21 days.
• Right to an internal review: If you do not like a decision about your hardship assistance application, you can formally ask for an internal review of the case.
• External dispute resolution: If we can’t come to an agreement, you are welcome to contact the Australian Financial Complaints Authority (AFCA). AFCA is an independent body that offers free dispute resolution services to consumers, ensuring that lenders act fairly and reasonably.

At Red Tree Finance, we understand how important it is to work with you to find a fair and sustainable path forward.

Dealing with money troubles can be exhausting, especially when they come without warning. But when you have a cash loan with Red Tree Finance, you don’t need to manage these troubles alone. 

Though you cannot stop your payments outright, we provide structured, legal avenues to help you manage your personal loan when times are tough. 

The best way to protect your credit health and gain peace of mind is by being proactive as soon as you start to feel the pinch. If you are struggling, please visit our Financial Hardship page or contact us online. 

Getting on the front foot today is the most effective way to secure your financial future.

Can you pause loan repayments?

If you’re experiencing financial hardship due to events like a loss of employment, a natural disaster or changes to your family situation, you can request hardship assistance in the form of a repayment variation. Most commonly, these variations often come as an extension to the term of your loan or a reduction in your regular repayment amount. 

Can a repayment arrangement affect my credit score? 

According to the National Debt Helpline, a default on your loan (which is when you have missed repayments) will be listed on your credit report. However, if you have organised a repayment arrangement with the lender due to financial hardship, they cannot list a default on your report. Therefore, it will not affect your credit score. 

How long does hardship assistance typically last?

Hardship assistance is a short-term solution to get you through an immediate financial obstacle. It’s not intended to be a permanent change to your contract. Ultimately, the duration depends on your specific situation, such as how long you expect to be out of work or recovering from an illness. Once the agreed-upon period ends, you will typically return to your regular repayment schedule.

The information provided in this blog is of a general nature and is provided without considering your specific objectives, financial situation, or needs. It is intended for informational purposes only and should not be relied upon as financial, investment, or other professional advice.Before making any financial decisions or taking action based on the information presented, you are strongly encouraged to assess its appropriateness in light of your individual circumstances. Red Tree Finance does not intend to provide personalised financial advice, and you should seek independent financial, legal, tax, and other relevant advice tailored to your unique situation.