If your bank has contacted you for missing loan repayments, you should talk to them.
Your bank is ready to listen and consider possible solutions that are right for you.
It’s important to be open and realistic when talking about your financial position.
If you hold multiple loans or finance packages from different credit providers, you should contact each provider as well.
Steer away from companies offering to save you money by negotiating reduced repayments. These companies charge high up front and ongoing fees and could leave you worse off. Speak to a free, independent and confidential financial counsellor instead.
What happens if you fail to make loan repayments?
If you continue to miss your loan payments, it’s essential to keep talking to your bank because avoiding them may lead to your bank taking further action including charging you late fees.
If the loan was provided for, and secured against, an asset such as a car or boat, your bank may look to take possession of this and sell it to pay off the amount owing on the loan.
The bank may choose to engage a specialised collections business (Mercantile Agent) to collect the amount owing on its behalf, or it may choose to sell your debt to a debt recovery business. You would then need to work with this business to pay off the amount owing. Debt collectors also have legal obligations to consider any hardship request you make in relation to paying this debt off.
If you don’t contact your bank during this period and agree to put an arrangement in place, the bank could commence legal action to recover the loan. There are several steps in this process and your bank will try to help you find a solution that’s right for you.
You may receive a default notice
Depending on the type of arrangement you have with your bank, they may send you a default notice if you’re behind in your payments. A default notice is a letter from your bank warning you that your account is in default because you’re behind with your payments.
You should read your default notice carefully, as it will tell you what the bank wants you to do, how long you have to do it, and other information about your position.
If you’re issued with a default notice, you’ll still have a limited period of time to come to an arrangement with your bank about your mortgage payments. You can still ask the bank for help at this stage. However, if you don’t come to an arrangement with your bank, they may start court action.
You may receive a Statement of Claim
It’s essential to stay in touch with your bank. Your bank will always look for ways to help you stay in your home or find another solution that works.
If they can’t do that, and you’ve been unable to meet the conditions of the default notice, your bank may lodge a legal document called a Statement of Claim.
A Statement of Claim is an application made to the court that sets out how much your bank claims you owe them and why they are making the claim.
You should seek legal advice as soon as possible if you receive a Statement of Claim and definitely within four weeks of receiving this document. If you do nothing, the court may enter a judgment against you, and you may lose the opportunity to lodge a defence if you have one.
Legal costs relating to the Statement of Claim will be added to your loan balance. The sooner you contact your bank the better as this will help keep down the legal costs added to your loan.
You can still talk to your bank and try to come to an arrangement about the loan even after receiving a Statement of Claim.
You can also seek help from a free and independent financial counsellor on 1800 007 007 or community lawyer. They may also assist you in lodging a complaint with AFCA if the bank hasn’t tried to help you.
How to find a lawyer
Help is available.
Legal Aid is a government service in each state that provides legal services for free.
Community Legal Centres also provide legal services to socially and economically disadvantaged people.
If you have limited funds to pay for a lawyer, the Law Society in your state can give you the names of lawyers who might be able to help with your case. The lawyer will need to explain how much their services are likely to cost or they may take your case ‘pro bono’, where they are able to waive their fees.
How missed payments affect your credit rating
If you are in default on your loan this will affect your credit rating. The longer your payment is past due, the greater the negative impact it will have. If your bank takes legal action against you, this can further impact your credit rating. A poor credit rating can affect your ability to receive finance in the future. Your bank will tell you if they make a report about a default to a credit reporting body.
If your bank has approved a financial hardship arrangement, they are not usually allowed to report overdue payments to credit reporting bodies.
Avoid companies offering to repair your credit rating. The Moneysmart website explains what you can fix and how to do it for free.
Take care of yourself and seek help
Please reach out if you feel in over your head. You could also contact the National Debt Helpline on 1800 007 007 and speak with a financial counsellor. Financial counsellors are qualified professionals who provide free, independent and confidential information and advice to people in financial difficulty. Charities and community organisations can also provide urgent help with food, housing and bills as well as emotional support.
You could also contact Beyond Blue on 1800 512 348 who offer a wellbeing and mental health support service.
If you have debts with multiple banks, Way Forward Debt Solutions may be able to help you manage your debt.
Moneysmart is another useful resource to help you.
What if you’re not happy with your bank’s response?
If you’re not happy with your bank’s response, you can make a complaint. You can find more information here.
In many cases, the complaint will be resolved internally between you and your bank with no further action required.
However, if your bank still doesn’t resolve the complaint to your satisfaction, you can take your complaint to the Australian Financial Complaints Authority (AFCA).
AFCA is an independent complaints scheme that is free for consumers. It provides an accessible way of resolving disputes, without having to go to court. The decision of the AFCA is binding on the bank.
You should only go to the AFCA after you have tried to resolve things with your bank, as AFCA will not deal with your complaint unless you have first given the bank the chance to help you.
If you want some support in making a complaint, a financial counsellor may be able to assist you. Call the National Debt Helpline to speak with a financial counsellor on 1800 007 007.