Car Loan Hardship Applications Explained - The Definitive New Zealand Guide

Our trusted car loan hardship application guide explains your legal rights, application steps and tips to increase application success and help repay your loan.

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Updated 14 February 2024

Summary:

  • Our guide explains the concept of financial hardship in the context of car loans, highlighting the importance of recognising and addressing repayment difficulties promptly.

  • We explain the specifics of the Credit Contracts and Consumer Finance Act (CCCFA), outlining both lender responsibilities and borrower rights under this important legislation which your car lender must follow.

  • Our guide takes you through the essential steps of making a hardship application, including eligibility criteria, necessary documentation, and the application process. We also explain the options available under a hardship variation, such as loan term extension and repayment postponement, and what to do if your hardship application is rejected.

  • We explain the common causes of financial hardship, such as job loss and illness, and how they significantly impact anyone's ability to manage car loan repayments. 

  • Our guide explains the importance of proactively managing car loans during these challenging times and why addressing these hardships early can lead to more effective solutions and prevent further financial stress.

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Know This First: Can my lender repossess my car while my hardship application is being reviewed?

In most cases, no:

  • During the review of your hardship application, your lender generally should not take enforcement actions like repossessing your car.
  • This restraint includes issuing repossession warnings, physically repossessing the car, or taking steps to sell or dispose of it.
  • The only situation where repossession might occur during this period is if your car is deemed "at risk" (for example, being damaged or sold without permission).
  • However, even in such cases, the lender is expected to hold off on further actions until your hardship application is fully processed, as outlined by the Commerce Commission's guidelines.
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What is 'Financial Hardship'?

Financial hardship in the context of car loans refers to situations where you cannot meet your loan obligations (e.g. ongoing repayments) due to unforeseen circumstances. Your inability to repay the loan could include reasons such as illness, injury, loss of employment, or significant life changes like the end of a relationship or the death of a partner or spouse.

Hundreds of New Zealanders make hardship applications to their car lenders every month, especially given the rising of living (rents, interest rates and food) squeezing finances like never before. 

Our view is simple: The earlier you act and submit a hardship application, the better the outcome, as time is on your side. Don't resist taking action - hardship is common and not embarrassing. Early recognition and communication with your lender can open up options for modifying your loan terms, making it easier to handle the repayment during tough times.

MoneyHub Founder Christopher Walsh

Car Loan Expert Founder Christopher Walsh shares his comments about why timing is everything:

"As the founder of MoneyHub and Car Loan Expert, I've seen firsthand how problems with car loans can escalate if they're not addressed promptly. Many car lenders lack patience, given their business model is about getting cash in (and getting it fast).

Understanding that time is your ally in situations of financial hardship is critical. The moment you sense difficulty in meeting your car loan repayments, it's crucial to act immediately. Postponing or avoiding the issue doesn't just lead to accumulating fees; it can significantly worsen your financial strain.

You need to confront financial hardships head-on. Lenders can be aggressive; the longer you wait, the more aggressive their collection tactics can become. We hear about immobilisers being activated, but there's a lot more - delayed action leads to fees and penalties piling up, exacerbating the financial burden. Sometimes, the financial holes are too deep to climb out of, and budget advisors tell me regularly how unpaid car loans can ruin lives. 

By initiating a conversation with your lender at the earliest sign of trouble, you're more likely to arrange a workable solution. It's also essential to shed any embarrassment about your financial situation and be realistic - only then can you get help.

Hardship can strike anyone, and there's no shame in seeking assistance. Remember, lenders have seen it all and are more inclined to assist cooperative borrowers. Engaging early with your lender demonstrates responsibility and a willingness to find solutions, which can lead to more favourable terms and outcomes.

Dealing with car loan difficulties isn't just about the financial aspect; it's also about taking charge of the situation with urgency and transparency. The sooner you address the issue, the more options and control you'll have over the resolution. It's about safeguarding your financial future and peace of mind."

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Know Your Rights under the CCCFA

What is the Credit Contracts and Consumer Finance Act (CCCFA)?

The CCCFA in New Zealand ensures that lenders act responsibly both in approving loans and when dealing with customers facing financial hardship. It provides borrowers with certain protections and mechanisms to seek relief when experiencing financial difficulties. The legislation was substantially overhauled in 2019 and then revised in 2023 to refocus consumer protection. The law changed to force lenders to better protect borrowers, with hardship applications being a core focus.  

Lender Responsibilities:

  • Under the CCCFA, lenders are required to act ethically and consider any hardship applications made by borrowers.
  • They are expected to work collaboratively with the borrower to find a feasible solution to manage the loan under hardship conditions.

Borrower Rights:

  • As a borrower, you can request a hardship variation on your loan. This includes options like extending the loan term, changing repayment amounts, or temporarily pausing repayments.
  • Lenders are obligated to consider these requests seriously and respond within specific timeframes.
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Making a Hardship Application - What You Need to Know

Eligibility and Process:

You can make a hardship application if you've experienced unforeseen hardship, believe you can meet your obligations if the contract terms are changed, and haven't been in default for more than two months or repeatedly missed payments. The application must be in writing, and the lender can't charge a fee for dealing with it.

How do I know if I'm eligible?

  • You are eligible to apply for a hardship variation if you have encountered unforeseen hardships like illness, injury, loss of employment, end of a relationship, or the death of a partner or spouse.
  • These hardships should be such that you couldn't have reasonably anticipated them when you took out the loan.

What will happen if my application is approved?

  • Your car loan will be 'varied', either by extending the term of your loan (which would reduce the amount of each payment) or postponing your debt repayments for a specified period (known as a payment holiday).
  • While these options offer temporary relief, be aware that they will likely increase the total amount you owe over the life of the loan. This is because even though your immediate payments may decrease, the interest will continue to be charged and increase the amount you owe over the extended period.

When can't I make an application?

  • You can't make a hardship application if you have been in default for more than two months, or if you have repeatedly failed to make your repayments on time.
  • Additionally, if you've already made a hardship application on the same grounds within any four-month period, you cannot make another unless it's for a different reason.

Once I make an application, what happens?

  • When you submit a hardship application, lenders must acknowledge it within five working days and decide on the application within a specific timeframe. They must also act reasonably and ethically in response to your situation.

Will a hardship application write off my debt? 

  • A hardship variation doesn't eliminate your debt. You are still required to repay your loan, although revised terms proposed by the lender should make it more manageable, given your current financial situation.
  • The good news is that lenders are not permitted to increase the interest rate on your loan. 

What happens if I don't hear back from my lender?

  • As outlined by the Commerce Commission, there are set deadlines and a decision must be timely.
  • Upon receiving a hardship application, lenders have specific deadlines to acknowledge the request (within five working days), ask for additional information (within ten working days) if needed, and make a decision.
  • If your request is declined or not responded to within these timeframes, you have the right to make a formal complaint with the lender and seek assistance from a financial dispute resolution scheme that your lender is a member of. 
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Seven Must-Know Steps to Manage Car Loan Hardship Applications

Managing car loan hardship effectively involves several critical steps, ensuring you navigate tough financial times while maintaining your financial integrity and credit history. The comprehensive steps outlined below help anyone making a hardship application to focus on what's important while minimising stress and anxiety.

Know This First: 

  • Lenders are legally obligated to consider hardship applications and to treat borrowers facing financial difficulties reasonably and ethically. This does not automatically mean that every application will be approved, but it does mean that lenders must assess each case on its merits. 
  • Lenders cannot force borrowers to repay a loan if it's genuinely unaffordable. If a hardship application is accepted, they might offer solutions like restructuring the loan or temporarily reducing payments to make them more manageable.
  • While lenders are required to consider hardship applications, the final decision and the type of relief offered (if any) can vary.
  • Responses to hardship applications can include adjusting payment schedules, temporarily reducing payment amounts, or pausing payments for a period. However, these are at the lender's discretion and are typically negotiated on a case-by-case basis.

Step 1: Contact Your Lender

The first and most important step is to talk to your lender when you anticipate difficulty meeting your loan obligations. Being open and honest about your situation is vital; this is not the time to withhold information - here's why:

  1. Building Trust: Being open about your financial difficulties helps build trust with the lender. Lenders are more likely to work collaboratively with borrowers who are upfront about their challenges as they are experienced enough to know when someone isn't being truthful.
  2. Assessment of Situation: Honest communication allows the lender to assess your situation accurately. They need to offer a solution that aligns with your specific needs and circumstances and can only do that if you're completely honest about your financial situation.
  3. Customised Solutions: Each hardship case is unique, and lenders often consider individual circumstances when deciding how to assist. Your honesty about your financial situation can influence the type of support or adjustments the lender offers.
  4. Regulatory Compliance: Lenders are often bound by the CCCFA to treat hardship cases fairly. Your openness enables them to comply with these regulations appropriately, ensuring they provide the necessary assistance per legal guidelines.

Step 2: Understand what a Hardship Variation Offers

Anyone owing money on a car loan can request a hardship variation under the CCCFA. This variation could include options such as extending the term of your loan, thereby reducing each payment, or postponing your debt repayments for a specified period, also known as a payment holiday.

It's crucial to understand that while these measures can provide temporary relief, they may increase the total amount owed over the loan's life. This is because interest will still be added to the balance at the agreed upon rate while you take more time to repay the debt.

Step 3: Preparing Documentation

When preparing a hardship application for your car loan, the importance of providing solid evidence cannot be overstated. You need to effectively present your case with the following considerations:

  1. Evidence is Key: Lenders require tangible proof of your circumstances to evaluate your hardship application. It's not enough to simply state your situation; you need to substantiate your claims with concrete evidence.
  2. Types of Evidence: If you've lost your job, include a termination letter or communication from your previous employer. In case of a rent increase, provide a copy of the notice from your landlord or property manager. If you're facing medical issues, include relevant medical documents or bills.
  3. Common Reasons for Rejection: Insufficient evidence is a common reason for the rejection of hardship applications. As highlighted in various case studies such as this example, applications that lack adequate documentation often fail to convince lenders of the applicant's need for hardship assistance.
  4. Documenting Your Financial Situation: Include a detailed account of your financial situation along with specific evidence of your hardship. This should cover your income, expenses, debts, and any other financial obligations. This comprehensive view helps the lender understand the full scope of your situation.
  5. Organising Your Documentation: Present your evidence in a clear and organised manner. Chronologically order documents and include a summary or cover letter explaining how each piece of evidence relates to your hardship.
  6. Be Proactive and Thorough: Don't wait for the lender to ask for additional information. Anticipate what they might need and provide it upfront. The more complete and detailed your application, the easier it is for the lender to assess your situation quickly and accurately.

Step 4: Seek Advice if Needed, and Submit the Application

If you're unsure about what evidence to include or how to present it, don't hesitate to get some help. The Community Law Centre, MoneyTalks NZ (financial counselling) and the Citizens Advice Bureau are experienced advocates. These organisations offer free guidance and support, helping you understand your options and rights. Many New Zealanders use their expertise, given their familiarity with making hardship applications. They can guide you on the type of documentation that will strengthen your application.

Know This: A well-documented hardship application significantly increases your chances of a favourable outcome. Lenders need to see a clear and convincing picture of your situation; the right evidence is critical in painting that picture. Our template script (downloads a DOCX file) helps show what that looks like.

Step 5: Understanding Hardship Assistance Options

If you qualify for financial hardship assistance, your lender may offer a variety of solutions based on your specific circumstances. These options can include:

  1. Reducing Loan Repayments: Temporarily lowering the amount you need to pay for each instalment.
  2. Loan Restructuring: Adjusting the terms of your loan, which might involve extending the loan period or changing the nature of repayments.
  3. Loan Repayment Deferral: Allowing you to pause your loan repayments for a specified period.
  4. Interest-Only Payments: Modifying repayments to cover only the interest for a period which can reduce the monthly amount due.
  5. Waiving Fees and Charges: In some cases, lenders may waive certain fees or charges associated with your loan.
  6. Moratorium on Collections: Temporarily halting collection actions on your outstanding debts.

Step 6: Evaluating the Long-Term Impact of Hardship Assistance

When you receive hardship assistance, it's crucial to understand the long-term implications for your financial situation. This step evaluates these impacts to help you make informed decisions about your car loan and overall financial health.

  1. Credit Report Implications: Receiving hardship assistance may be reported to credit agencies. While specifics like your balance and overdue amounts aren't disclosed, the report will show you're receiving hardship assistance. This could influence your creditworthiness in future credit checks and make lenders refuse you for a loan or credit card.
  2. Increased Interest Over Time: If your loan term is extended or if payments are deferred, you will usually pay more interest over the life of the loan, and it takes you longer to repay the balance. While the interest rate won't increase, this increase in interest to pay should be carefully considered as it affects the total cost of your loan.
  3. Financial Support Period: After the hardship assistance period ends, your account might enter a Financial Support period. During this time, the minimum repayment amount on your loan may be adjusted, which could affect your monthly budgeting.
  4. If Your Financial Situation Improves: Should your financial situation improve, communicate this to your lender as soon as possible. This may allow you to return to your original repayment terms or negotiate a new repayment plan that better suits your improved financial status and minimises the total interest costs you pay.

Know This: Understanding these aspects will help you to manage your car loan more effectively during and after the hardship period. It's about balancing immediate financial relief with long-term financial implications.

Step 7: What To Do If Your Hardship Application Is Rejected

If your car loan hardship application is rejected, there are several steps you can take and important considerations to keep in mind:

  1. Internal Complaints Process: Start by using your lender's internal complaints process. This is the first step to address your concerns directly with the institution that declined your hardship application. It's crucial to detail the reasons for your hardship application and why you believe the rejection was unreasonable or unfair.
  2. External Dispute Resolution Schemes: If the internal complaints process does not resolve the issue, you can escalate your complaint to an external dispute resolution scheme. Most lenders are members of a dispute resolution scheme, and this service is free for consumers. It offers an independent review of your situation and the lender's decision. Our guide to complaining to your car lender has more information.
  3. Commerce Commission Involvement: In cases where you believe the lender has failed to comply with their obligations under the CCCFA, you can contact the Commerce Commission and tell them about your case. The Commerce Commission has the power to enforce non-compliance of the CCCFA.
  4. Seek Budgeting Advice: If you haven't already worked with a budget advisor, it's never too early. They can step in and provide guidance and assistance to manage your debts and stabilise your overall financial situation. The Community Law Centre, MoneyTalks NZ (financial counselling) and the Citizens Advice Bureau are experienced advocates.
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Understanding Common Reasons for Hardship Application Rejection

It's crucial to understand common reasons why car loan hardship applications might be rejected. Being aware of these can help you prepare a more compelling case and improve your chances of approval.

1) Delay in Application

Acting quickly is key. If you experience financial difficulties, it's important to apply for hardship assistance as soon as possible. Delaying your application might make lenders consider it too late to offer effective help​​.

2) Incomplete or Inaccurate Information

Providing complete and accurate information is essential. Make sure your application includes all necessary documentation and details about your financial situation. Missing or misleading information can lead to rejection.

3) Insufficient Proof of Hardship

Lenders need concrete evidence of your hardship, such as medical bills, termination letters, or legal documents reflecting life changes. Without adequate proof, your application might not be approved.

4) History of Defaults or Late Payments

Your borrowing history matters. Lenders may be less inclined to approve your hardship application if you have a consistent pattern of late payments or defaults. Demonstrating responsible borrowing behaviour is crucial​​.

5) Unreasonable Requests

It's important to request hardship assistance that aligns with the terms of your loan agreement, such as moving to interest-only payments for three months to reduce the monthly repayment. Given your financial situation, asking for non-permitted or feasible assistance (such as cancelling the loan or changing the interest rate) can lead to rejection.

6) Legal and Contractual Breaches

Be aware of the specific terms and conditions of your loan agreement. Breaching these terms, such as providing someone else a security interest in the vehicle, can result in immediate default and the potential repossession and sale of the vehicle​​, and hardship applications won't change that course of action.

7) Hardship Not Due to Unforeseen Circumstances

Hardship applications are typically meant for unexpected situations beyond your control. If the hardship is due to foreseeable or preventable reasons, your application might not be successful.

  • Reckless Spending: If a borrower has a history of reckless spending or financial mismanagement, such as excessive credit card debt due to luxury purchases, this could be seen as a preventable cause of financial hardship.
  • Failure to Save or Budget: A lack of savings or inadequate budgeting for known expenses can be viewed as preventable. For instance, not setting aside funds for routine car maintenance or predictable life events can lead to financial strain.
  • Overcommitting Financially: Taking on financial obligations that are clearly beyond one's means, such as a credit card, store card and/or personal loan that exceeds the borrower's budget, is often seen as a foreseeable hardship.
  • Ignoring Budgeting Advice: If a borrower has been advised against certain financial decisions, like taking on additional debt or purchasing an expensive vehicle, but proceeds anyway, this could be considered a preventable hardship.
  • Investment Losses from High-Risk Ventures: Lenders may not be sympathetic to engaging in high-risk investments or speculative ventures that lead to significant financial losses.
  • Voluntary Reduction in Income: Choosing to switch to a lower-paying job or reducing working hours without a compelling reason might not be considered an 'unforeseen' hardship.
  • Neglecting Insurance Coverage: Failing to obtain or maintain adequate insurance coverage for the vehicle, leading to financial strain due to repair or replacement costs, could be seen as a preventable hardship.
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Car Lender Hardship Application Links

The lists below include popular lenders along with their respective contact information for hardship applications. It's important to note that while some lenders may still reference COVID-19-related hardships, their hardship application processes apply to all types of financial difficulties. Also, be aware that some lenders might label their services as 'personal loans'. However, the application process for hardship assistance remains similar, even if you've used such a personal loan for purchasing a car.

General lenders:

Car Specific Lenders:

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Downloadable Resources for Effective Hardship Applications

Navigating financial hardship can be challenging, but having the right tools and guidance can make a significant difference. Our templates and scripts provide valuable resources to assist you in preparing your hardship application. They are designed to simplify the process and improve your chances of success.

1. Car Loan Hardship Application Script Template

Our script template is a structured guide to help you draft your hardship application. It includes key elements to include, such as personal information, an explanation of your hardship, and a request for assistance, all laid out in an easy-to-follow format.

2. Car Loan Hardship Application Examples

This document provides real-life examples of hardship applications. These examples offer insights into effectively explaining your situation to the lender, including the necessary details and a suitable tone.

Next Steps:

  1. The resources above are meant to provide a starting point. We suggest personalising them to fit your unique circumstances and working with a budget advisor or advocate if necessary. The Community Law Centre, MoneyTalks NZ (financial counselling) and the Citizens Advice Bureau are experienced advocates.
  2. These three organisations offer free guidance and support, helping you understand your options and rights. Many New Zealanders use their expertise, given their familiarity with making hardship applications. They can guide you on the type of documentation that will strengthen your application.
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Frequently Asked Questions

How do I know if I'm eligible for a hardship application?

You're eligible if you've faced unforeseen hardships (like illness, job loss, or significant life changes) affecting your ability to repay the loan. These should be circumstances you couldn't have anticipated when taking out the loan.

What happens if my hardship application is approved?

Your loan will be varied - this could mean extending the loan term, reducing payment amounts, or pausing repayments. However, this usually increases the total amount owed due to continued interest accrual.

Can I apply for hardship if I've been in default?

You cannot apply if you've been in default for more than two months or repeatedly missed repayments. Also, you can't make another application on the same grounds within a four-month period unless it's for a different reason.

What should I do if my hardship application is rejected?

Start with the lender's internal complaints process. If unresolved, escalate to an external dispute resolution scheme. You can also contact the Commerce Commission if you believe the lender hasn't complied with the CCCFA.

Will applying for hardship affect my credit history?

Receiving hardship assistance may be reported to credit agencies. While specific balances and overdue amounts aren't disclosed, your credit report will indicate you're receiving hardship assistance, which could impact future credit checks.

Does a hardship application write off my debt?

No, it doesn't eliminate your debt. You're still required to repay your loan, but under revised terms to make it more manageable. Lenders aren't allowed to increase the interest rate on your loan during this period.

What if my financial situation improves during the hardship period?

If your situation improves, it's best to tell your lender. You may be able to revert to original repayment terms or negotiate a new plan based on your improved financial status, and minimise interest costs as a result given you'll be able to pay more off the loan and faster. 

I got my car loan through a broker. Who should I contact for a hardship application?

If you obtained your car loan through a broker, you should contact the lender providing the loan for any hardship application. The broker acts as an intermediary between you and the lender, but it's the lender who will make decisions regarding loan modifications or hardship assistance.

You can find the lender's contact details in your loan agreement or statement. It's important to communicate directly with the lender to discuss your situation and explore available options for hardship assistance.

What if my financial situation improves during the hardship period?

If your situation improves, it's best to tell your lender. You may be able to revert to original repayment terms or negotiate a new plan based on your improved financial status, and minimise interest costs as a result given you'll be able to pay more off the loan and faster. 

Related Hardship Resources:

Hardship Resources for Other Applications: