Deciding Whether A Payment Deferral Is Right For You

Apr 08, 2020
deferral payment

During this crisis many of us are at home, watching the news and listening to government officials propose and announce various relief efforts for consumers. But there could be confusion on the part of consumers on how your financial institution can help you if you need assistance with making your loan payment, in the event you’ve lost your job or your income has otherwise been impacted during this difficult time.

A key question has to do with deferrals of loan payments. This topic has come up in announcements from both federal, state and local officials. A deferral means that your payment will be deferred to a future date. A deferral is not payment forgiveness. A deferral will typically not stop interest from accruing on your consumer loan or mortgage. Without specific regulatory guidance, each financial institution treats deferrals in its own manner.

However, what is clear is that to obtain a deferral you need to contact your financial institution and make a request. Your financial institution should be able to provide you specific information about what they can offer in terms of payment deferrals, length of deferral and how the missed payments will be handled once the deferral period ends. Most government announcements have focused on mortgage payment relief, however, the majority of financial institutions, like The Police Credit Union, are offering deferrals on most types of consumer loans. Deferrals usually come with conditions to qualify; common conditions are that your loan must be current and they are typically available only once in the life of the loan, and are limited in duration.

Here is a checklist of considerations to help you determine if a deferral is right for you and your family:

  • If your income is not impacted now, it may not be a good time to request a deferral. While a deferral in this type of situation should not impact your credit report, it will either have a balloon payment of deferred payments, extend the term of your loan, or cost you more in interest.
  • If your income is not impacted now but might be in the future, it might be a good idea to wait until you really need the assistance, especially because the deferral may only be offered once, or is for a limited term.
  • Will your income resume? If your income is unlikely to resume in the near future, it might be a good idea to work on a different solution with your financial institution. Besides deferrals, most lenders have other solutions to help, such as reduced payments, forbearance, work-out loans, etc.—however, be aware that these solutions may impact your credit once the crisis ends.
  • Even if your loan is currently delinquent, it would still be advantageous for you to contact your lender and discuss your options.
  • If you don’t think you will be able to make your mortgage or rent payment in April, contact your lender or landlord as soon as possible. While many jurisdictions have placed a moratorium on foreclosure and eviction actions, these measures will not last forever. If you find yourself in this situation, the best advice is to start working with them as soon as possible.

What happens after the deferral period ends?

This depends on your lender and the type of loan you have. For consumer loans, many lenders will simply add the deferred payments on to the end of the loan, and some lenders may or may not charge you interest during the deferment period. For credit lines, it’s possible that your deferred payments will all become due and payable on your next statement cycle. Since most mortgage lenders are following federal servicing guidelines, it’s likely that they will have all deferred payments due once the deferral period ends. As many borrowers will not be able to immediately pay back the deferred payments all at once, lenders are likely to provide a variety of solutions to assist the consumer, such as increased payments over time, loan modifications, and even payment forgiveness in some situations. However, keep in mind that all of these solutions may ultimately have a negative impact to the borrowers’ credit.

At this point the only type of assistance that will likely happen automatically are direct payments under the CARES act. Americans who pay taxes will receive a one-time direct deposit of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.

All other types of assistance under this act need to be requested, applied and qualified for through your financial institution. Members of The Police Credit Union should call us at 800.222.1391 if you need assistance.

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