Dealing with Financial Hardship
October 3, 2015
Financial hardship is when a borrower who shows willingness to pay his/her loan commitment but is unable to do so, due to reduced income or earnings as a result of unexpected events such as changes in employment status resulting in job loss or having reduced working hours.
Significant life events for example a relationship breakdown, death in the family, ill health or injurycan also cause financial hardship leading to non-payment of home or car loans or hire purchase account or any other loan.
Can I be assisted if I face hardship? Yes! The law (Consumer Credit Act 1999, Consumer Credit (Amendment) Act 2006 and Regulations 2009) has provision to assist people facing genuine hardship. Section 66 of the Act allows for changes to your credit contract ifyou are unable to make repayments because of financial hardships.However, evidence is required to prove the cause of your financial hardship.
You cannot seek help for hardship if you had been irresponsible. For example, you had decided not to make a payment because of your spending habits. What options are available to me if I am facing hardship? You have three options:
- Temporary reduction of repayment amount If you can make repayments, but cannot afford the full required repayment amount, then you can apply for a temporary reduction in repayment amount. You should state the amount you believe you can pay as your repayment amount. For example, Veer, a salesman, worked for a textile company but the company was not doing so well. As a result,he suffered a pay cut. He had to make adjustments to his daily expenses and one was the $50 weekly payment to a hire purchase company for a TV set, he had purchased for his family earlier. The term of hire purchase contract was 36 weeks. The TV was worth $1800, of which Veer had paid $400. In this circumstance, Veer could pay only $30 per week until his pay was restored. He met with the hire purchase company to reduce his weekly repayment amount. Timely assistance from the Hire Purchase Company was a relief to Veer. He now pays $30 per week, however, his hire purchase term has increased to 50 weeks to enable him to clear his loans.
- Ask for repayment holiday. That is deferringyour repayment for a specified period You can request your credit provider for a repayment holiday. For instance, Tevita, who works as an hourly paid labourer, was laid off by his company. He was paying $40 a week for an unsecured personal loan. Tevita did not shy away and visited his bank for guidance. The bank offered him a two months repayment holiday, which meant Tevita didn’t have to make payments to the bank for two months. This gave him breathing space as he looked for another job. However, Tevita’s loan period also increased because of the deferment in repayments.
- Extending the period of loan and deferment of repayments for a specified period Under this provision you can apply for extension of loan period and a holiday repayment. For example the loan term can be extended from say 25 to 30 years thus reducing the repayment amount. You can also ask for deferment of repayments for few months.With this arrangement, it is important to note that you will pay more in interest since the term of loan is extended by 5 more years. The option provided by your lender eventually, does not mean that repayments will not cost you more.You will still be charged interest on whichever option you take.
- What else can I do apart from going to the bank or credit provider? If you are uncomfortable approaching your bank, you can also seek help from the Consumer Council of Fiji. The Council’s Debt Management and Consumer Credit Advisory unit will be able to assist you by taking your case to the credit provider. Remember as soon as you face hardship or you know that you will be facing difficulties, do not wait for a miracle to happen.
You must immediately contact your bank or credit provider with evidence.
Next Week, read on helping your own self by speaking about your financial crisis.