Over the past month, our lives have dramatically changed. While it is difficult to explain everything that is going on in the world, one area of discussion keeps coming up. Is anyone going to forgive my loans? This question has a lot more to it than meets the eye. So let’s unpack some of the options available to customers and break them down.
First is loan extensions. These are formal agreements between the lender and the borrower to move payments that are due now, to a later time. Typically, for consumer loans a loan extension will move current payments owed to the end of the loan term. This will either cause your loan maturity date to move out correspondingly, or you will have a larger final payment (also called a balloon). Typically, lenders will try to collect the current interest due prior to extending the loan. If you can pay the interest, it is better for you, the borrower, over the long term.
Second is loan forbearance. Loan forbearance is a temporary postponement of payments granted by the lender to the borrower in lieu of taking collection action (repossession, foreclosure, etc.). This can take shape in several forms depending upon what the lender and borrower negotiate. There are currently posts floating around on social media stating something similar to the following: “If you agree to six months of forbearance, in month seven you will owe the previous six months plus month seven all at once.” While this may be true in some instances, it is not always the case. If forbearance is granted, in the case of a mortgage, it is expected the lender (or servicer) must work with the borrower on a permanent plan to assist in maintaining or reducing monthly payment amounts as necessary including the loan modifications.1.
Lastly, is the idea of loan forgiveness. This idea centers on the assumption that some entity (bank or government) would step in and eliminate either a portion or all of a specific debt. Forgiveness is unlikely from a bank. Simply put, there are no banks in the USA that can absorb loan forgiveness on the scale needed to improve the US economy. Any forgiveness programs will likely be at the federal government level. However, there is generally a cost to these programs as they are funded with debt that will be repaid by taxpayers over the next several decades.
If you are concerned about your ability to continue to make payments on your loans, please reach out! Start the discussion early with your creditor (bank). Here at Reliabank, we have been actively working with customers on their individual challenges long before COVID-19 impacted us all. We are in tough times and community banks have answered the call again. Everyone’s situation is unique and not everyone may qualify for the options listed above, but it is still important to maintain open communication with your bank about the options available to you.