When money gets tight, knowing your options matters. Forbearance—essentially an agreement between you and your lender to pause or reduce payments—can be a crucial safety net. In 2025, with cost-of-living pressures and interest rates still in the headlines, understanding forbearance is more important than ever for Australian households and businesses.
What Is Forbearance, and When Is It Used?
Forbearance is not debt forgiveness. Instead, it’s a formal arrangement where your lender allows you to temporarily pause or reduce repayments due to hardship—commonly triggered by job loss, illness, natural disasters, or major economic shocks.
- Mortgages: Home loan forbearance surged during the pandemic and remains relevant as some Australians continue to face financial uncertainty.
- Personal and Business Loans: Small business owners and individuals can request forbearance on unsecured loans, vehicle finance, or credit cards.
- Student Loans: While HECS/HELP doesn’t have a traditional forbearance program, hardship provisions may apply.
Forbearance is typically granted after a formal hardship application and is recorded on your credit file, but it’s less damaging than default or arrears.
2025 Policy Updates: How the Rules Have Changed
Recent economic volatility prompted Australian regulators to revisit hardship and forbearance guidelines. In 2025, several key changes are in play:
- ASIC Guidance: The Australian Securities and Investments Commission updated its guidance for lenders, emphasising clear disclosure, tailored solutions, and proactive outreach to customers showing signs of distress.
- Credit Reporting Reforms: As of March 2025, comprehensive credit reporting rules require lenders to note forbearance arrangements more transparently. This may influence future borrowing but is viewed more positively than missed payments.
- Major Bank Initiatives: The Big Four banks have extended streamlined hardship support, including digital applications, rapid assessment, and dedicated case managers for customers affected by disasters or economic shocks.
The upshot: Forbearance is easier to request and more widely available, but transparency means borrowers need to be proactive and well-informed.
Weighing the Pros and Cons of Forbearance
Forbearance can prevent defaults, repossessions, and the stress of escalating arrears. But it’s not a magic bullet—there are trade-offs:
- Pros:
- Buys time to recover financially.
- Keeps your loan in good standing (with some impact on credit).
- May include waived fees or reduced interest (case-by-case).
- Cons:
- Interest often continues to accrue, increasing total repayment over time.
- Forbearance is flagged on your credit report, which can affect borrowing capacity for up to 24 months.
- It’s a short-term fix—if your situation doesn’t improve, lenders may proceed to collections or foreclosure later.
Real-world example: During the 2024 Queensland floods, thousands of homeowners accessed three-month mortgage forbearance. Some were able to resume payments as normal, while others needed to renegotiate terms, highlighting the importance of ongoing communication with your lender.
How to Apply for Forbearance in 2025
Every lender has a different process, but the essentials are similar:
- Contact your lender as soon as hardship arises—delays can limit your options.
- Provide documentation (income loss, medical bills, insurance claims, etc.).
- Discuss your repayment capacity and seek a written agreement for any changes.
- Monitor your credit file to ensure the forbearance is recorded accurately.
- Reassess your financial position before the forbearance period ends.
Some lenders now offer online applications and hardship hotlines, streamlining access for those who need urgent support.
The Bottom Line: Using Forbearance Wisely
Forbearance is a powerful tool for staying afloat during tough times. In 2025, Australia’s updated policies and digital processes have made it more accessible, but it’s vital to understand the short and long-term impacts. Open communication with your lender and a clear repayment plan are your best defences against lasting financial fallout.
