Life is full of unexpected events. They can often result in financial strain, which can make meeting credit obligations difficult.
For some people, this may lead to entering a part 9 or 10 debt agreement to help get things back on track. If you’re in this situation, you could find getting a home loan difficult. Depending on your circumstances, however, specialist lenders such as Pepper may be able to assist.
Understanding debt agreements
A debt agreement is an arrangement between you and your creditors to assist you in paying back your debts. Debt agreements are often drawn up as an alternative to bankruptcy and are based on what you reasonably can afford to pay back to your creditors. Your creditors must also approve the debt agreement in order for the agreement to go ahead.
There are two types of debt agreements: A Part 9 (often written as Part IX) or a Part 10 (Part X) which form part of the Bankruptcy Act 1966. Whether you are eligible for a Part 9 or Part 10 agreement depends on how insolvent you are.
What's the difference between part 9 and part 10 debt agreements?
Part 10 agreements are usually drawn up for people who cannot repay their debts at all. Part 9 agreements are more flexible and are drawn up for people who are unable to repay debt, and their assets and income are below a certain set amount. Part 9 agreements typically last between three to five years, while Part 10 agreements can last much longer. To find out the specific differences between a Part 9 or Part 10 agreement, see the MoneySmart website.
What to consider before entering a debt agreement.
While debt agreements are often a preferable option to bankruptcy and can relieve financial pressure, they can still have serious implications such as your ability to obtain credit in the future. If you’re planning on applying for a home loan, it’s important to understand what it means for you.
Before entering into any debt agreement, you should seek professional advice to understand your options, what to expect and to get help deciding on a debt solution that is right for you. For a list of financial counsellors, visit the MoneySmart website or you can seek free independent advice via the National Debt Helpline.
Does a debt agreement impact your credit score?
Debt agreements will leave a mark on your credit file for up to five years, or longer in some cases. This will affect your credit history and will be taken into consideration when a lender assesses you for credit.
Your name will also be placed on the National Personal Insolvency Index (NPII). Any record on the NPII will be present on your credit report, which is checked by credit agencies when they assess you for any type of credit (home loans, credit cards). This can make it very difficult for you to obtain credit in the future.
Applying for a home loan with a Part 9 debt agreement
You can apply for a home loan and buy a house when you are under a debt agreement, but it may be difficult to get approval. Lenders consider a debt agreement as an ‘act of bankruptcy’ that shows you’ve had problems paying back loans previously, making you a higher risk applicant. Specialist lenders may consider your loan application, though it may it result in higher than average interest rates to compensate for the higher risk of your loan.
If your debt agreement is active, it may count against you as an outgoing expense, which would give you less income to pay the loan back. If your debt agreement has finished, this will be viewed positively by the lender, but some major lenders may still deny your application.
It’s important not to rush into applying for a mortgage and make too many applications for credit. All applications are recorded on your credit file as hard inquiries, which could inhibit your ability to borrow in the future due to a lowered credit score, or simply it being seen as a red flag by a lender.
How Pepper Money may be able help.
In some cases, we may be able to assist you in finalising a debt agreement or structuring debt consolidation into your home loan through refinancing. However, if you're looking to purchase a property, you will need to be officially discharged from your debt agreement to be eligible for a home loan with Pepper Money. To learn more about looking for a mortgage after bankruptcy click here.
We understand real life happens and have a range of home loans for people in your situation. As an alternative lender, we consider a range of factors when assessing your loan application, not just your credit history.
When we talk to you, we’ll ask things like:
- Why did you get into a debt agreement?
- How new is the agreement?
- What was the life event that may have caused this?
- Is the life event still ongoing?
- Are you looking to settle or pay out your agreement soon?
- Have you been meeting all the obligations of the agreement?
These questions help us to understand your full story, and help to work out a way forward. Note: All applications are subject to our loan suitability and assessment criteria.
At Pepper Money, a bad credit history doesn’t mean you shouldn’t be able to get a home loan. We have a range of flexible loan solutions to suit people in these situations, so if you’re looking to get a home loan under a debt agreement or after bankruptcy, speak to one of our friendly Lending Specialists on 137 377 or submit an enquiry online.
We’ll do our best to find a way forward for you. See how we helped Kevin get his life back on track after bankruptcy.
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This article provides you with factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77 or speak to an accredited Pepper Money broker.
All applications are subject to the credit provider’s credit assessment and loan eligibility criteria. Terms, conditions, fees and charges apply. Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.
©Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.