If you can’t pay your Personal loan due to financial hardship – including hardship brought on by the COVID-19 crisis – many lenders are offering short-term deferral plans that will allow you to extend the term of your loan in exchange for an interruption in your regular monthly payment .
Temporary suspension of your payments is not free if your lender charges interest on deferred payments. But if you need short-term relief, postponing may be an option.
What is a deferral on a personal loan?
When you defer paying a personal loan, you don’t free yourself from those months’ payments; you extend the term of the loan regardless of the length of the deferral period. If you defer payments by two months, for example, those payments are added at the end of your loan.
Deferring a payment means you delay it without breaking the loan agreement. Some lenders have offered deferred payments as part of a hardship program since before the COVID-19 crisis, while others have adapted their hardship offers to the current needs of borrowers.
A lender may offer an interest-free personal loan deferral, which means that interest will not accrue on the loan when you suspend payments. Other lenders continue to charge interest on the loan during this time. If you postpone two months of payments during a 36-month repayment term and the loan continues to earn interest, you will actually pay 38 months of interest.
So far, lenders have offered postponement periods of one to two months, but these could be extended if the crisis persists.
Calculate how much the deferral may cost
Make sure you know if your personal loan will continue to earn interest so you can calculate the cost of the deferral.
How to defer payment of a personal loan
Even in times of crisis, you should contact your lender and ask for deferred loan payments. If you start making late payments or skip them altogether without notifying your lender of a problem, your credit could be affected and your loan could be considered. in default.
Many lenders require you to log in, email, or call and answer a few questions about your struggles to defer payments. Few lenders disclose specific requirements as to who is eligible to defer a loan.
Lenders may not be able to approve hardship requests instantly, especially if there are a lot of borrowers applying at the same time. LendingClub, for example, says it could take seven to 10 business days for borrowers to be approved for its hardship plan.
How deferred payments affect your credit
Your credit score shouldn’t change much if you delay your personal loan payments, as lenders aren’t supposed to report them as missed or late to the credit bureaus. Nonetheless, you should check your credit reports to make sure they are recorded correctly.
However, your credit score will be affected if the lender hasn’t approved your deferral request and you don’t make your payments on time anyway.
Lenders usually need to make changes to your account to begin the deferment process. If you are applying for the hardship and your payment is due before the lender has made a decision on your application, try making the payment to avoid risking your credit score.
You should expect the deferral status to appear on your credit report.
Other options to cut costs during the COVID-19 crisis
The federal government and financial institutions are working to provide relief to those who have been financially affected by the coronavirus. Here are other ways to relieve yourself.
Consolidate or refinance your loan. If you have good or excellent credit, refinancing or consolidating your debt with a low interest loan can be a way to cut costs. Some lenders have lowered rates in response to the economic downturn, while others have raised them.
If you have multiple sources of debt, such as credit cards, a debt consolidation loan can consolidate all your debts into one, making it easier to manage payments.
Look for local alternatives to the personal loan. If you are trying to avoid getting into debt, there may be charities, nonprofits, or religious groups in your area that can help. Search our database for help in your condition.
Contact other financial institutions. Financial institutions, like banks and credit card companies, are still responding to economic changes caused by COVID-19. If you need relief, reach to your insurer, credit card company, mortgage lender, or bank and see if they can help you. Many have already set up hardship programs to help you get immediate financial relief.
See what government help you can get. The US Treasury will also begin to disburse dunning checks in the next weeks. Checks offer up to $ 1,200 to eligible adults and $ 500 per child under 17.
Unemployment benefit have also been expanded for those who have been made redundant because of the coronavirus.