Life happens. Unexpected expenses, furloughs, or emergencies can make it hard to keep up with loan payments. If you’re considering delaying any loan payments, it’s important to understand your options and the impact on your finances. Remember: delaying payments is a short-term solution, not debt forgiveness.
Why Act Early?
If you anticipate trouble making loan payments, contact your lender before you miss one. Acting early can help you avoid late fees, protect your credit score, and open the door to relief options.
Common Options for Payment Relief
- Deferment. Temporarily pause payments, often for student loans or personal loans. Interest may still accrue, so confirm terms.
- Skip-a-Pay. Allows you to skip one monthly payment, typically for auto or personal loans. Usually offered during hardship or promotional periods.
- Forbearance. Provides longer-term relief, often for mortgages. Payments are postponed, but interest usually continues to accrue.
What to Ask Your Lender (and Why It Matters)
Before agreeing to any payment relief option, it’s critical to understand the details. Asking the right questions ensures you know how the arrangement will affect your finances now and in the future. Here’s what to cover:
1. Will interest accrue during the pause? Some programs allow you to skip payments but still charge interest, which means your balance could grow even while you’re not paying. Knowing this upfront helps you plan for the total cost.
2. Will this extend my loan term or increase my monthly payment later? Deferred payments often get added to the end of your loan, which can lengthen the term or increase future payments. Clarify how this will work, so you’re not surprised down the road.
3. Are there fees or eligibility requirements? Some lenders charge a small fee for processing deferments or require you to meet certain criteria (like being current on your loan). Ask about these details to avoid unexpected costs.
4. Can I get the terms in writing? Always request written confirmation of the agreement. This protects you if there’s a misunderstanding and ensures your credit report reflects the arrangement accurately.
5. Will this affect my credit score? Approved deferments typically don’t hurt your credit but missed payments without an agreement can. Confirm how your lender will report the arrangement.
By asking these questions, you’ll have a clear picture of the short-term relief and long-term impact, helping you make the best decision for your financial health.
Impact on Your Credit
Approved deferments or forbearance typically don’t hurt your credit if you adhere to the agreement. Missing payments without approval or an agreed upon plan with your lender can negatively impact your score.
Budgeting During Hardship
While payments are paused, adjust your spending to avoid future strain:
- Prioritize essentials like housing, food, and utilities.
- Use budgeting tools or apps to track expenses.
- Avoid taking on new debt unless absolutely necessary.
Alternatives to Deferral
While deferring payments can provide short-term relief, it’s not always the best long-term solution. Consider these alternatives:
- Refinance your loan. Refinancing can lower your interest rate or extend your repayment term, reducing monthly payments. This option works well if your credit score is strong and rates are favorable.
- Loan consolidation. Combining multiple loans into one can simplify payments and potentially lower your overall interest rate. This is especially helpful if you’re juggling several high-interest debts.
- Adjust your budget. Before deferring, review your spending. Cutting non-essential expenses or temporarily reducing discretionary spending can free up funds for loan payments without changing your loan terms.
- Emergency savings. If you have an emergency fund, consider using it to cover payments during hardship. While it’s tough to dip into savings, it can prevent interest from piling up and protect your credit score.
How PSECU Can Help
At PSECU, we understand that financial challenges can feel overwhelming, especially when they’re unexpected. You’re not alone, and we’re here to help you navigate this time with confidence and care.
Here’s what we offer to support you:
- Personalized guidance. Every situation is unique. Our team will work with you one-on-one to explore options that fit your needs.
- Flexible solutions. From payment relief programs to budgeting tools, we’ll help you find ways to ease the strain without compromising your long-term financial health.
- Financial counseling. Our certified experts can help you create a plan to manage expenses, prioritize essentials, and prepare for what’s next.
- Reliable access. Even during uncertain times, our digital banking, call center, and branch services remain fully operational, so you can manage your money anytime, anywhere.
Your financial well-being is our priority. If you’re facing hardship, reach out early. Together, we can find solutions that keep you moving forward.
Let’s Review
Delaying loan payments can provide short-term relief during financial hardship, but it’s important to understand the terms, costs, and long-term impact. Acting early and staying informed will help you protect your credit and maintain financial stability.
Looking for more ways to manage your money during tough times? Explore our free financial education resources for tips on budgeting, saving, and planning for the future.
