Can't afford your car repayments?

If you are reading this because the car payment is too much this month, start here: this is a common problem, and the rules are on your side more than you might think. The most useful thing is to act early. Options narrow the longer a loan is overdue.

This page covers what to do in the first few days, what hardship help is, what a lender may and may not do, and where to get free support. We are a referral service, not a lender, so we have nothing to sell you here. If you want to understand the numbers first, the calculator and how repayments are worked out may help.

Step 1: Work out how much trouble you are in

Before you ring anyone, gather four numbers.

1. What you owe now. This is on your latest statement, or you can ask the lender.
2. Your repayment and how many payments are overdue, if any.
3. What the car is worth roughly. Compare with listings for similar cars.
4. What you can pay each week or month, after rent, food, power and other essentials.

Free help is available to go through these with you. MoneyTalks gives free support on money matters: call 0800 345 123, free text 4029, or use the live chat on their website. A financial mentor can help you work out what to say to your lender.

Step 2: Contact the lender early

Phone or email the lender as soon as you know you will struggle, and say so plainly. Lenders deal with this all the time. Tell them:

• What has changed (job loss, illness, injury, reduced hours, a relationship change)
• How long you expect it to last
• What you can afford to pay right now

Ask what help they offer. Write down the date, the name of the person and what was said. Follow up in writing, because email creates a record.

Step 3: Ask for hardship help

Under the Credit Contracts and Consumer Finance Act, if illness, injury, job loss or another unexpected event stops you keeping up, you can apply for a change to your payments. Consumer Protection NZ lists the sorts of arrangement that may be possible:

• Spreading payments over a longer period
• A payment holiday until a later date
• Interest-only payments for a set time

How to apply, as set out by Consumer Protection:

• Apply in writing, by letter, email or the lender’s form.
• Say which change you want and explain the unexpected event, with proof if you have it.
• Apply as soon as you find it hard to pay. There are time limits, and Consumer Protection says you generally need to be less than two months behind.
• The lender cannot charge you a fee to consider it.
• It must give you a decision, with reasons, within 20 working days, and it generally has to suspend repossession action until the decision is made.
• If the lender takes too long or does not treat the request fairly, you can complain to its dispute resolution scheme.

Nobody can promise a lender will agree. But it costs nothing to ask.

What a hardship change costs you

A change that lowers today’s payment usually costs more later, because interest keeps running. Here is an example. It uses an example rate of 12.95%, indicative only.

You borrowed $20,000 over five years, paid monthly, so the payment is $454.55. After 24 payments you owe about $13,500, with 36 payments left.

• Interest-only for a while. Interest on $13,500 is about $145.69 a month, so the payment drops by about $309. But the balance does not fall while it lasts.
• A three-month payment holiday. Interest still builds. The balance rises by about $442, to roughly $13,942. If you then pay it off over the original 36 months, the payment is $469.43, which is about $15 more than before.
• Spread over 48 months instead of 36. The payment falls to $361.84, which is $92.71 a month less. The interest for the remaining time goes from about $2,864 to about $3,868, so it costs around $1,005 extra.

These are choices to weigh, not traps. If it keeps you in the car and out of arrears, extra interest may be worth it. Just know the price. The calculator shows it for your own loan.

What the lender can and cannot do

Before repossession. A lender can repossess only if the contract allows it and you have missed payments or broken another term. It must first send a warning notice at least 15 days before. Only licensed repossession agents can do it. Debt collection and repossession must stop while a dispute or a hardship application is being resolved.

After repossession. The lender must send a notice setting out your options: catch up on what is overdue, pay the full amount owing, or let the lender sell the car. The notice must give an estimated value. If you find a buyer, the lender must sell to them for at least that value, and it must take reasonable steps to get the best market price. Within seven days of the sale it must tell you the sale price, the costs and any shortfall or surplus.

After the sale. The lender cannot add interest, penalties or collection costs to what is left. If it does, complain to the financial dispute resolution scheme.

Contact. Collectors may contact you for a reasonable purpose, such as asking for payment or going over a plan. They must not use force or unreasonable harassment, mislead you or threaten court action without a genuine legal reason.

Other action. If you do not pay, the lender can go to court and get a judgment, which goes on your credit record. It can then ask for money to be taken from your pay or benefit. You can ask the court for a financial assessment.

Handing the car back

You can offer to hand the car over voluntarily. Consumer Protection says this may reduce costs and avoids a visit from a repossession agent, and that if it comes to that, the debt would not include penalty interest or repossession costs. You would still owe any shortfall after the sale. Talk to a financial mentor before you do this, because the right move depends on what you owe against what the car will fetch.

Things to avoid

• Ignoring the lender. Silence closes options.
• Taking out another loan to cover car payments without working out the total cost. Check the numbers or ask a mentor first.
• Signing something you do not understand. Ask for it in plain words and take time.
• Selling the car without telling the lender. The lender usually has a security interest in the car until the loan is paid, so the debt must be dealt with in the sale.

If it is bigger than the car

If the car loan is one of several debts, the Insolvency and Trustee Service explains the formal options, including a debt repayment order and bankruptcy. A free financial mentor can help you work out which suits. See also car finance after a debt repayment order.

Looking ahead

Once things settle, a cheaper car or a different loan may help. If you want to compare, refinancing is covered in its own page, and our check can show offers from a panel of NZ lenders. Nobody can promise approval, and lenders decide case by case. Fix the immediate problem first.

Sources

• Consumer Protection NZ: loan for your car for hardship, repossession notices and what lenders must do
• Consumer Protection NZ: payment problems for hardship applications and debt collection
• Consumer Protection NZ: debt collection and repossession for collector conduct and the sale rules
• MoneyTalks for free financial support
• Insolvency and Trustee Service: personal debt for formal debt options