Deferred Loan Payback Options When Coronavirus Ends
, by Tom Quinn
If your financial stability has been negatively impacted by the coronavirus such that you may not be able to pay your bills on time, you should contact your lenders as soon as possible (preferably before missing any payments) to explain your situation and seek assistance. The good news is that most lenders have programs in place to help their impacted customers.
Generally, the programs are designed to temporarily suspend or reduce the amount of your monthly loan payment for a set period. There shouldn't be any fees, penalties or additional interest added to your account through this deferment, but regular interest may still accrue.
While this relief can be a financial life savior for many, it's critically important to understand these payment plans are not intended to be permanent or "freebies" - you will likely be expected to pay the deferred amounts once the temporary program ends. The time to discuss the program's payback structure is now when you are applying for the program and not when the program ends.
Here's an example: Assume your monthly mortgage payment is $1,000. You and the lender agree to defer your monthly payments for three months (a total of $3,000).
The payback structure will likely be one of the following:
| Payback Structure | Scenario Impact |
| Deferred with lump sum payment: | After 90 days, the program ends, and you have to pay the lump sum of $3,000, the deferred amount, plus the $1,000 payment also owed for the current month. That equals a total of $4,000 in the month following the end of the program. |
| Deferment with partial payments: | After 90 days, the program ends, and you have to pay an extra $500 per month (above your regular $1,000 per month payment) over the next six months to pay back the $3,000 deferred. That equals a $1,500 monthly payment for six months following the end of the program. |
| Deferment with loan term extension: | After 90 days, the program ends. Your monthly go-forward payment remains $1,000, but the lender will extend the term of the loan by three additional months. |
Think through your situation to determine which plan makes the most sense for you based on your circumstances. Also, your lender may have other payback options that you may want to consider. Regardless of which arrangement works best for you, be sure to document all interactions you have with the lender and carefully review any forms or agreements before signing to help prevent unwanted surprises down the road.
Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.