Delaying Payments 101

Delaying Payments 101

Like many, you may be facing financial hardship now because of the pandemic. Or maybe you see a possible job loss in your future. In either case, it’s important to get conversations going with anyone you owe to alert them to your particular situation, whether it’s employment, medical, or both, that will likely impact your ability to pay them.

Terms to Know and Understand

Your lender may modify the terms of your loan to reduce the interest rate, extend the current maturity term, offer a different loan type, or offer any combination of these. If you anticipate a conversation with your lender about a loan modification, get familiar with terms you might hear during your discussion.

  • Deferment – Essentially, you’re hitting the “pause” button on your loan repayment, and usually in response to some temporary hardship situation (e.g., unexpected medical expense, etc.) One to two months of delayed payments is a fairly typical offering. The deferred payments are added onto the end of the original term of the loan. It’s important to find out if the deferment is interest free or if interest is accruing during the deferment period. 
  • Skip-a-pay – A specific type of deferment that typically allows you to make no payment for one month without requiring a hardship situation. Skip-a-pay programs are usually subject to certain factors, including whether the loan payments are current. Closed-end loans such as personal loans and auto loans are often candidates for skip-a-pay programs.
  • Forbearance – Like a deferment, forbearance involves delayed payments, generally for a mortgage loan. Where a deferment covers one to two months of delayed payments, a forbearance agreement could cover a period of up to 12 months. During that forbearance period, the lender can agree to accept reduced payments (or even no payments), often during a short trial period, in exchange for delaying certain collection remedies. At the end of the forbearance period, the agreement may specify a return to higher payments, extend the maturity term, or make another modification.

What to Do

We always recommend consulting your budget (or making one if you don’t have one in place) when considering major financial decisions. If you know that you’re going to have trouble making payments, contact your lenders as soon as possible. 

delaying payments

When you’re able to talk with someone, explain your situation and let them describe the options they can offer. You may be dealing with several lenders, so be prepared to take notes during each conversation. Keep any documentation you receive about arrangements you’ve worked out in a safe place, and continue making payments until you receive official confirmation regarding when the program takes effect.

If you do secure an arrangement that allows you to delay loan payments, you’ll want to keep a close eye on your credit report. To assist consumers with this monitoring, the three credit bureaus – Experian, Equifax, and TransUnion – have teamed up to make these reports available weekly through April 2021. To sign up for this free service, visit www.AnnualCreditReport.com.

Remember: you’re responsible for paying all monies owed! While you have a respite from monthly payments, continue to look for ways to save money or make extra cash. And for more money management tips, visit our WalletWorks page. 

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.