The options for addressing financial difficulty asap

Question 1

What are the options for addressing financial difficulty?

Answer 1

• Personal loans
• Negotiating alternative payment plans
• Seeking support

Question 2

What is personal loans?

Answer 2

A personal loan lets you borrow money to pay for something special, like a holiday, car or home renovations.

Question 3

How do personal loans work?

Answer 3

Once you have a personal loan, you begin making regular repayments to your credit provider. The
amount of each repayment is based on the sum borrowed, the term (length) of the loan and whether the
interest rate is fixed or variable. Fixed interest rates stay the same throughout the term of the loan (for
example, 2 per cent over five years). Variable rates will change over the period of the loan.

Question 4

Where can you access a personal loan from?

Answer 4

In Australia, customers can access personal loans from:
* banks (for example, ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank
and Westpac Banking Corporation)
* credit unions
* building societies
* other financial institutions (for example, finance companies).

Question 5

Advantages of Personal Loans

Answer 5

While none of these lending organisations is government owned, all are supervised by the Australian
Prudential Regulatory Authority (APRA). Regulation requires these lending organisations to offer services
to assist customers to get the best possible outcome from their choice of loan product and thereby reduce
financial stress. Typically, these services take the form of information, tips and tools as well as access to
teams of financial advisors and counselling specialists.

Question 6

Disadvantages of Personal loans:

Answer 6

1. Fees and interest rates could be high
2. You’re locked into a contract
3. Personal loans increase your debt

Question 7

What is Negotiating alternative payment plans?

Answer 7

Should someone experience difficulty with their repayments due to unforeseen circumstances (such as
illness or unemployment), they have the right to apply to their credit provider for a hardship variation.

Question 8

How does Negotiating alternative payment plans work?

Answer 8

This requires them to:
* Contact the provider of the loan.
* Tell them about the need to vary the loan contract because of hardship. (This is set out in Section 72 of
National Consumer Credit Code.)
* Explain why they are having difficulties, how long they think their financial problems will continue
and how much they can afford to repay.

Question 9

Where can you access an alternative plan from for Negotiating alternative payment plans

Answer 9

Other options include selling assets and only paying the interest on the loan (rather than also reducing the
principal or amount borrowed).

Question 10

Advantages of Negotiating alternative payment plans

Answer 10

A number of choices are available if you have to vary your loan due to hardship; these include:
* extending the loan period
* making smaller repayments over a longer period
* postponing repayments for an agreed period.

Question 11

Disadvantages of Negotiating alternative payment plans

Answer 11

While changing payment plans may incur fees, it is better than just ignoring the problem. If a borrower
continues to skip repayments, the finance provider is entitled to foreclose on the loan. This means they can
seize the borrower’s assets and sell them to recover the money.

Question 12

What is Seeking Support?

Answer 12

In addition to the support offered by lending institutions, a range of other services and service organisations
can help you negotiate loans and alternative payment plans.

Question 13

How does Seeking Support work?

Answer 13

People who find themselves in financial difficulty have several options available to them to get help. The best choice is the option of ‘best fit’. For example, a young person applying for a hardship
variation on a car loan is more likely to opt for the no-cost, or low-cost, service not directly associated with
their bank.

Question 14

Where can you access support from Seeking Support?

Answer 14

Independent
research of online
financial
information,
factsheets, tips
and tools

Assisted support
from specialist
financial advisors,
counsellors or
lawyers not
directly associated
with your financial
institution

Assisted support
from customer
service personnel
at your financial
institution

Assisted support
from free
government or
community
counselling
services

Question 15

Advantages of Seeking Support

Answer 15

Those who prefer to ‘go-it-alone’ can choose to access reliable information, factsheets, tips and tools to
help them resolve the difficulty on their own. This includes resources provided online by the Australian
Securities and Investment Commissions (ASIC); for example, through moneysmart.gov.au.

Question 16

Disadvantages of Seeking Support

Answer 16

People who are less confident to address their own difficulties or face very complex issues can access
support from other people. These people include:
* Specialist financial advisers, counsellors and lawyers who are not directly associated with your
financial institution. Using independent services of this kind will incur a cost.
* Customer support and services personnel directly associated with your financial institution. These
services are usually at no-cost to customers because they are factored into the price of the financial
product (for example, the loan plan) the customer has bought.
* Counsellors at government or community agencies, many of whom provide services for free or at low
cost. For example, the National Debt Helpline offers free step-by-step guides to fix common debt
problems as well as free, independent telephone counselling.