Forbearance and Your Credit Reports

Highlights:

• Understand the difference in deferment vs forbearance meaning and how each option affects your personal situation.
• Loan deferment typically means delaying or reducing monthly payments, including interest accrual, for the duration of the deferment.
• Deferment can be different than forbearance meaning the main difference is in forbearance interest will continue to accrue even during the forbearance period.

Loan forbearance can be a great relief during times of struggle and need, but as with any agreement, it is important to understand what is forbearance as well as the difference between deferment vs. forbearance.

Throughout our lives we are likely to experience unsettling times, whether they're due to global or national economic issues, personal or family emergencies or job concerns leading to temporary or permanent unemployment. These unexpected times often leave us facing financial challenges and leaving us struggling to keep up with bills, including rent, utilities, cell service and insurance premiums.

In these times it's important to talk to your creditors and lenders about debt repayment options. One of your choices may be forbearance meaning an agreement with a lender or creditor that enables the borrower to delay or suspend loan payments for an agreed upon amount of time.

Sometimes people use the term forbearance meaning deferment or deferred payments, but there can be differences in forbearance vs. deferment agreements.

• Deferment meaning: typically in these arrangements, the lender allowed the borrower deferred payment meaning interest will not accrue during the period of the deferment.
• Forbearance meaning: while similar to a deferment, a lender offers a deferment of payments, or reduces the required monthly payment, or interest rates for a period of time as a forbearance, meaning that, unlike a deferment, interest on the balance will continue to accrue on the loan.

What debts qualify for forbearance?

The term “forbearance” is usually associated with home mortgages, but the truth is any lending agreement you've entered into may be eligible for deferred or suspended payments.

Many creditors and lenders offer special repayment options on a variety of debts due to severe and immediate economic impacts of unforeseen circumstances. This includes mortgage forbearance, student loans, auto loans, credit card balances, utilities, property taxes and small business loans.

Depending on what agreements you reach with your lenders and creditors, they may agree to allow decreased or delayed payments for a specific time period of up to 12 months. They may also offer to reduce the interest rate being charged on your debt, but there are no federal guidelines requiring specific terms for forbearance agreements across all industries.

Talk to your lenders and creditors for definitive information on forbearance/deferred payments

Eligibility requirements vary depending on the type of debt you wish to request forbearance for, and each lender and creditor has its own programs and rules. For more information on setting up forbearance, or to learn more about the options available to you, including choices outside of forbearance, contact your lender or creditor directly.

Remember, you can't just miss a payment and expect no repercussions without communicating with your lender about your situation. You'll need to work out an agreement with your lender before stopping payments — otherwise, your credit standing could be compromised.

While forbearance may allow you to deal with your short-term financial challenges and help you get back on your feet without jeopardizing your credit scores, it doesn't come without its drawbacks. If you enter into a forbearance agreement, you're not getting “free money”. Depending on the repayment plan you agree to with your lender or creditor, you may need to repay the interest that accrues during your approved deferral period, and late fees may still apply. Ask your lender if you'll still be charged late fees, how and when those fees will be applied and how your forbearance agreement will be reported to the Nationwide Credit Reporting Agencies (Equifax^®, Experian^®, and TransUnion^®).

Forbearance process: mortgages

Mortgage forbearance is a program that many mortgage providers or holders offer as an option that allows you to remain in your home while you regain your financial stability, to avoid foreclosure. It is typically a short term program and may include temporarily stopping or decreasing payments, but each financial institution and lender have different programs and qualification requirements. It is important to pay close attention to the terms as while it may provide a decrease in payments or a pause, interest and late fees may still apply.

If you find yourself in a financial situation where you are struggling and will be unable to make your full mortgage payments on time, contact your lender as soon as possible to discuss your options.

Forbearance/deferred payment process: auto, personal and student loans

A significant number of auto lenders offer forbearance agreements or deferred payment plans to customers facing temporary financial hardship. This includes options for existing customers as well as those looking to purchase a new vehicle. Contact your lender to learn more about their specific deals.

(And remember: If you find yourself with additional cash and are able to continue making your payments, even though none may be required for the time being, you'll chip away at your debt and better position yourself for financial security once you regain your financial stability.)

Forbearance process: credit cards

Every credit card company has different options and requirements for forbearance or payment deferrals on your credit card debt. Some may allow you to defer payments while interest continues to accrue over a set period of time. Others may offer to reduce your interest rate or principal payments temporarily. Go to your credit card issuer's website to learn what options are available and what you have to do to get help. Even if your credit card company isn't offering a plan that works for you today, it might add new options in the near future, so check back frequently for updates.

Forbearance process: utilities and property taxes

Many cities and states across America offer relief options for utility bills and property taxes to those impacted by unforeseen economic hardships. This may include forbearance or deferred payments. Call your local municipality or utility provider for details.

Credit: Steps you can take now

One important thing you can do right now is to make sure your current credit reports are accurate and reflect any forbearance or deferred payment agreements you may have reached with your lenders. For free monthly Equifax credit reports, you can sign up for an Equifax Core Credit™ account. You can also get free credit reports annually from the three nationwide CRAs at AnnualCreditReport.com. If you see something that appears incorrect, you can dispute the information you believe to be inaccurate or incomplete.