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Communtity Law Manual | Credit & debt | Repaying the loan

Credit contracts: Hire purchase, loans and other credit

Repaying the loan

Problems with making your repayments

Note: You have options if you’re having trouble with your loan. You can phone Consumer Protection’s helpline, 0508 4 CONSUMER (0508 426 678), to talk to someone there about it. You may also be able to apply for a break from your repayments if something unexpected has happened (see below, “Unforeseen hardship: Applying to have the contract terms relaxed”, and for more information about your options generally, see “Other resources” at the end of this chapter).

What happens if I can’t meet my payment commitments?

If you fail to meet your payment commitments or breach the credit contract in some other way, the lender may be able to repossess goods that you bought on hire purchase or that you put up as security for a loan (see “Repossession” in this chapter).

Note: If you’re not able to meet your payment commitments, you may be able to negotiate another arrangement with the lender – for example, making smaller payments over a longer period. If the debt is unsecured, you may be able to apply for a debt repayment order to enable you to pay the debt back over time and to stop the lender taking court action against you (see “When you can’t pay your debts: Bankruptcy and other options” in this chapter).

Unforeseen hardship: Applying to have the contract terms relaxed

When you can ask the lender to relax your repayment obligations

Credit Contracts and Consumer Finance Act 2003, ss 55, 56, 57A(3)(a), 59A

You can ask the lender to change the terms of the credit contract if:

  • you’re unable to meet your obligations because of some unforeseen hardship, and
  • you can reasonably expect to meet your obligations if the lender relaxes the contract terms.

Examples of unforeseen hardship are if you’re sick or injured, if you’ve lost your job or if your marriage or relationship has ended.

Changes to the contract can include extending the term of the contract (to reduce the amount of each payment) and postponing certain payments.

You’ll need to put your request in writing. The lender can’t charge you a fee for dealing with your request.

When you’re not entitled to make a hardship request

Credit Contracts and Consumer Finance Act 2003, s 57

In some cases when you’ve already missed a payment, the lender doesn’t have to consider any hardship request you make. This applies:

  • if you’ve been behind on your payments for two months or more, or
  • if four times in a row you’ve failed to make your payments on time, or
  • if you’re behind two weeks or more after getting a repossession warning notice (see “Repossession” in this chapter).

However, even in those cases the lender must consider your hardship request if you’ve now fixed the problem.

The lender also doesn’t have to consider your request if you could reasonably have been expected to foresee, when you made the contract, that the hardship would prevent you making your payments.

Credit Contracts and Consumer Finance Act 2003, s 55(1B)

There’s also a restriction on how often you can make hardship requests on the same grounds. If you’ve already made a hardship request to the lender, you can’t make another one within the next four months unless it’s for a different reason.

The lender’s response to your hardship request

Credit Contracts and Consumer Finance Act 2003, s 57A

After they receive your written hardship request, the lender must meet a number of deadlines:

  • They have to give you a written notice acknowledging your request within five working days after receiving it.
  • If they want more information from you, they have to ask for this within 10 working days after your request.
  • The lender must make a decision and notify you of it within 20 working days after your request (or, if they’ve asked for more information, then within 10 working days after getting the information or within 20 working days after asking for the information, whichever is later). The lender must comply with the lender responsibility principles when they decide (see “Responsible lending requirements” in this section). If they refuse your request, they have to give you written reasons for this and must tell you about your right to take the issue to the courts or the Disputes Tribunal.

What can I do if the lender refuses my hardship request?

If the lender refuses your request, you can ask the courts or the Disputes Tribunal to change the terms of the contract (see the chapter, “The Disputes Tribunal”).

You can also take your request to the courts or Disputes Tribunal if the lender does not respond with a decision within the required time (see above).

“Prepayment”: Paying off the debt early

Can I pay off the debt early?

Credit Contracts and Consumer Finance Act 2003, ss 49–54

A lender must accept early or extra payments (also called “part prepayments”) unless the contract says that the lender can refuse them. If a lender refuses an early payment, they must refund that payment to you as soon as practicable.

A lender must accept full repayment at any time, and the contract can’t prevent this.

Note: The lender can charge you a “break fee” if the contract specifically allows this. A break fee – called a “prepayment fee” in the CCCF Act – is a fee you pay if you pay off the credit early. The fee must be a reasonable estimate of the lender’s loss arising from the early payment (see also “Interest and fees” in this section).

If you’re considering early repayment, ask the lender what it will cost to repay early (they may charge you a small fee for working out the figures). Make sure you check whether it’s worth it to repay early. Getting budgeting advice will help.

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