If you get a repossession notice but cannot pay what you owe, you can offer to voluntarily hand over the item, eg car bought on finance or hire purchase TV. This may save on repossession costs. It also means no visit from a repo agent.
If the lender agrees, they will sell your item. If the sale price doesn't cover what you owe — sometimes it's too low — you must repay the rest. Once your item is sold, it freezes your account, meaning interest and fees will no longer be added to what you owe.
If you don't pay
If you get behind on payments but do nothing, your lender — or others you owe money to — will act to recover the overdue debt. What they can do depends on the type of debt, how much you owe, your personal circumstances, and what's allowed in your credit contract.
Timeframe: Lenders and others have six years to recover overdue debt. This starts from either:
- date you fell behind on payments
- date you acknowledge the overdue debt in writing
- date you make a part-payment.
If they take longer than six years to first act, you generally do not have to pay.
Common steps lenders may take:
- Use a debt collection agency.
- Report your debt to credit reporting agencies, which will affect your credit score.
- Repossess and sell any assets named as security in your credit contract, eg car or home, or items bought on credit (hire purchase).
- If you have a guarantor, chase them to pay what you owe.
- If your credit contract includes a wage deduction authority, ask your employer to take money from your pay. You can refuse permission, but must find another way to repay your debt.
If you still don't pay, the lender may take you to court. The court will consider both sides and decide what you owe the lender. This is called a judgement debt. It will go on your credit record.
If you don't pay the judgement debt, the lender can apply in court for an attachment order to take money directly from your pay or benefit. Worried you can't afford it? Ask the court to have a financial assessment done — or get help from a free financial mentor.
Free confidential advice(external link) — MoneyTalks
Debt collection and repossession
Bankruptcy and insolvency options
How much do you spend? Check each section of this calculator to make sure you haven't forgotten anything.
Budget calculator(external link) — Insolvency and Trustee Service
Common causes of payment problems
Whatever the cause, you can get help to solve payment problems. A good first step is to get confidential advice from a free financial mentor. They can:
- talk to lenders on your behalf
- check if the lender has done something they shouldn't, eg unfair fees, no affordability test
- help create a budget to fit your needs
- point you towards other help, eg lower-cost finance options, food parcels, community lawyers
- dig into what might be causing your payment problems, eg spending habits or a lender acting unfairly
- help you complain to the lender's dispute resolution scheme, if needed.
Free confidential budgeting advice(external link) — MoneyTalks
How to tackle these common problems:
Do your spending habits lead you into debt? This is less about how much you spend, and more about why you spend.
Common examples include multiple buy now, pay later purchases, or borrowing to buy a car or smartphone to keep up with friends.
A free financial mentor can help spot your spending patterns and find ways to get your debts under control. As well as budgeting, this could include:
- repayment plan agreed with lender
- selling your asset(s) to help repay what you owe, eg car or jewellery
- debt consolidation loan, if suitable
- insolvency options, if you cannot repay your debts.
Relying on higher-cost debt
When your credit score is low, it can be hard to access affordable finance.
If you're on a low income, you may be eligible for a low-cost loan from a microfinance provider. Work and Income also offers one-off loans and grants.
Don't forget your bank, if you have one. If they agree to lend you money, keeping repayments up to date will help your credit score.
Lower-cost loans and lenders
Loan is more than you can afford
Lenders must check if you can afford repayments before they lend you money. So must car dealers setting up vehicle finance, because they are the lender's agent.
- looking at your income and living costs, eg rent, food, power bills, medical bills
- working out if you have enough money left over to cover loan repayments.
If a loan's repayments make it very hard to afford your regular living costs, it's possible the lender (or car dealer) didn't do an affordability assessment, or failed to do it properly. This breaks the Credit Contracts and Consumer Finance Act's responsible lending requirements.
You have good reason to ask the lender to:
- reduce what you owe, eg cancel or reduce interest and/or fees
- agree an affordable repayment plan.
Contact the lender, or get a financial mentor to do this for you. If the lender (or car dealer) doesn't agree, you can complain to their dispute resolution scheme.
What lenders must do
If you can't afford repayments because you gave incorrect information about your income and costs — and the lender had no good reason to believe your information was wrong — the lender may not be held responsible. Get help from to work out a repayment plan, eg from a free financial mentor.
If an unexpected life event suddenly makes it hard to afford repayments — eg job loss, serious illness or injury, death of a partner — you might be eligible for hardship. This is a formal application to change your payment schedule.
Apply for hardship
Hidden/high fees or interest
Lenders must share information about the total amount owed, including all fees and interest payments.
The Credit Contracts and Consumer Finance Act limits how much lenders can charge on interest and fees for high-cost loans:
- lenders cannot ask you to pay back more than twice the amount borrowed
- they cannot charge more than 0.8% of the unpaid loan balance in interest and fees per day when averaged across the loan term— and cannot charge compound interest
- default fees for missed payments must be $30 or less.
Other fees must also be reasonable, which means enough to cover the lender's costs but not earn a profit.
- establishment and admin fees
- early repayment fees
- default fees if you don't pay on time.
If you weren't told about a fee or other loan cost — or it seems unfairly high — you can challenge the amount. Contact the lender, or get a financial mentor to do this for you. If the lender doesn't agree, you can complain to their dispute resolution scheme.
If things go wrong with your contract
What common contract terms mean
Lender too fast or slow to chase overdue payments
If you fall behind on payments, your lender should follow up promptly. This is to give you a chance to get back up to date before penalty costs stack up.
The lender's payment demands must be reasonable. For example, they cannot give you just a few days to repay the loan in full.
Nor can the lender take too long to act on missed payments, resulting in too many extra costs piling on top of what you owe, eg admin fees and penalty interest. The delay can be seen as unreasonable behaviour by dispute resolution schemes and the courts.
Example — Too much interest
Make an official complaint
If something goes wrong, first talk to your lender, debt collector or others you owe money. If you can't agree a solution, you can take your complaint further.
In most cases, the next step is to contact your lender's financial dispute resolution scheme. But if it's a problem connected to your personal information, contact the Privacy Commissioner.
Dispute resolution scheme
All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:
- give you information about how lenders should act
- share tips on how to complain to your lender
- look into certain complaints when you and your lender cannot agree on a solution.
It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.
Free confidential advice(external link) — MoneyTalks
There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:
- Ask your lender.
- Phone any one of the four schemes to find out. For contact details, see:
Financial dispute resolution schemes
You can also check the lender's entry on the Financial Service Providers Register:
Search the register(external link) — Financial Service Providers Register
If the dispute scheme investigates your complaint, it might:
- Reduce the amount you owe, eg refund some fees or interest.
- Award compensation, eg for inconvenience.
- Report the lender to the Commerce Commission if there's evidence they often break the rules.
- Find the lender did nothing wrong.
Lenders, debt collectors and other creditors (people or organisations you owe money) must not tell family, friends, employer or others about your debt without your consent. If they do, you can complain for free to the Privacy Commissioner.
Making a complaint(external link) — Office of the Privacy Commissioner
Get support at any point from:
- MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.
Contact information(external link) — MoneyTalks
- Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.
Our law centres(external link) — Community Law Centre