What Are Arrears? A Beginner’s Guide to Loan Repayments
If you’ve ever taken out a home loan or investment loan, you’ve probably heard the word arrears. It sounds formal, almost like it belongs in a courtroom. But in finance, it has a very real meaning—and for borrowers, it’s one you can’t afford to ignore.
In simple terms, arrears are overdue payments. But what counts as overdue? How does it affect you as a property investor or home buyer in Australia? And most importantly, what can you do if you find yourself slipping behind? Lenders are required to keep track of your repayment history, and even a single late payment can appear on your credit file under repayment history information (OAIC). That’s why understanding arrears and acting early if you fall behind is critical.
Breaking Down the Basics
The arrears definition is straightforward: money that should have been paid but wasn’t, on time.
Say your mortgage repayment is due on the 1st of September. If the money hasn’t gone through by the 2nd, technically, you’re in arrears. Even if it’s just a couple of days late, your lender’s system records it.
There’s also another side to arrears in finance. Sometimes, the term is used when payments are scheduled towards the end of a period. For example, rent is often paid at the end of the month, but in the world of loans, arrears almost always mean “late.”
As the RBA has explained in its public addresses, the way repayments are structured can influence how financial stress shows up in household budgets. And if arrears do start to build, Australians have the right to seek hardship assistance or lodge a complaint through bodies such as the Australian Financial Complaints Authority (AFCA).
Why It Matters More in Today’s Market
In Australia, the context around arrears in loan repayment has shifted. Since 2022, the Reserve Bank of Australia (RBA) has raised interest rates more than a dozen times, sharply increasing the cost of servicing a mortgage.
APRA’s latest figures show a small but steady rise in the number of borrowers falling behind. On paper, the increase is less than one per cent, but in reality, it represents thousands of households juggling higher repayments, rising grocery bills, and stagnant wages.
For investors, the risk doubles. Not only are your repayments higher, but you also rely on rental income. If your tenant misses rent and goes into arrears themselves, you could suddenly be left covering both sides.
The Real-World Consequences
So what actually happens when you fall into arrears?
- Credit score hits: Even one missed repayment can leave a mark on your credit file. That can make refinancing harder later.
- Lender contact: Most banks will get in touch quickly, sometimes within days. It starts as a reminder, but persistent arrears can escalate to default notices.
- Fees: Late fees pile on, adding extra pressure when you’re already struggling.
- Worst-case scenarios: Prolonged arrears can lead to legal action or foreclosure, though lenders often try to avoid this outcome.
It’s not all doom and gloom, though. Falling behind once doesn’t mean disaster—it’s what you do next that matters.
Arrears Meaning for Investors
For property investors, the arrears definition isn’t just about keeping up with your own repayments. Tenant arrears are just as critical because they directly affect your ability to service the loan.
Let’s look at this through an example: imagine you own a $600,000 investment property in Brisbane. Your tenant falls behind on rent for two months. That’s roughly $4,000 you were relying on to cover the mortgage, which is suddenly missing.
Smart investors prepare for situations like this. They maintain a cash buffer, take out landlord insurance, and work with their broker to structure loans with features such as offset accounts. That way, even if rental income dries up for a while, tenant arrears don’t automatically push them into arrears on their own loan.
Staying Ahead: Practical Steps
If you’re worried about arrears in loan repayment, there are practical moves that can make a real difference:
- Pick up the phone early: Lenders such as CBA, NAB and Westpac all run hardship programmes. The earlier you call, the more options you’ll have.
- Look for refinancing: Sometimes a simple refinance through a broker can reduce your repayments or extend your loan term. This provides you with some breathing space.
- Use redraw and offset wisely: A redraw lets you access extra repayments you’ve made, while an offset account cuts the interest charged by linking savings to your loan balance. Both can ease cash flow and reduce costs.
- Don’t go it alone: Mortgage brokers can cut through the complexity and talk directly with lenders on your behalf.
Taking these steps can help you stay on top of repayments in the short term. But arrears aren’t only about immediate fixes—they can also point to deeper financial patterns that deserve attention.
When Arrears Signal Something Bigger
When you strip it back, arrears are more than just numbers on a loan statement. They’re often a sign that something in your financial setup isn’t working—cash flow gaps, overexposure, or simply bad timing with rate rises.
CoreLogic’s research shows that households that act early—by restructuring debt or seeking advice—are far less likely to face forced sales. The key isn’t to be perfect. It’s to be proactive.
Bringing It All Together
Understanding arrears isn’t complicated: they’re simply overdue repayments. For Australian property investors and home buyers, the implications are serious—missed repayments can snowball if they’re ignored.
The takeaway is simple: act early. By understanding arrears in finance, planning for the unexpected, and seeking expert guidance, you can keep your property goals on track—even in a higher-rate environment. At Efficient Capital, we help Australians navigate these challenges—whether you’re looking to refinance, restructure, or set a clear repayment plan—so you stay one step ahead of arrears.