Forbearance
Forbearance summary:
Forbearance is a temporary relief option that allows borrowers to pause or reduce their payments for a set amount of time.
Forbearance can apply to many forms of debt, including mortgages and student loans.
To be eligible for forbearance, borrowers typically need to demonstrate financial hardship.
Forbearance definition and meaning
Forbearance provides temporary relief to borrowers who have trouble making loan payments. If you’re struggling and your lender offers forbearance, you could have your payments paused or reduced to an amount you can afford. Forbearance benefits both you and the lender. You get time to regain your financial footing and work out a plan for continued repayment. The lender benefits by helping you avoid claiming bankruptcy and walking away from the debt entirely.
Key concept: When you struggle to make loan payments, forbearance could provide you with paused or reduced payments for a specific amount of time.
More about forbearance
It's not ideal when you have trouble making your loan payments. However, a lender would rather that you come to them with the issue rather than default on the loan. Your lender might be willing to offer a period of forbearance in the hopes that you’ll get back on your feet and make regular payments again. They may pause or reduce your monthly payments during this time.
Forbearance: a comprehensive breakdown
Lenders aren't required to offer forbearance, and some choose not to. However, if your lender does offer forbearance during times of financial hardship, here are a few details you'll want to know:
Interest will probably accrue. During a forbearance period, interest will normally continue to accrue on your outstanding balance. That means the amount you owe will go up.
Forbearance won't impact your credit score. Entering into a forbearance doesn't directly impact your credit score. When you’re allowed to skip payments, they’re not reported as late.
You may need to show that you're eligible. Your lender might ask you to provide evidence of financial hardship.
Communicating with your lender may be your best bet. Once you realize that you're going to have trouble making a payment, reach out to your lender to let them know what's going on and ask about any solutions they offer.
Forbearance FAQs
How does forbearance affect loan cost?
Forbearance allows you to temporarily pause loan payments. If interest continues to accrue while your loans are in forbearance and you don't make any payments during this time, your balance will grow. If you can, pay at least enough to cover the interest while your regular payments are paused.
Will forbearance hurt my credit score?
No, forbearance won't hurt your credit score.
Is there any way to prevent interest from accruing while my loan is in forbearance?
If you're looking for a forbearance on your student loans, you might be able to ask for a deferment instead. During a deferment, interest doesn’t accrue on some kinds of federal student loans. Your loan servicer can tell you what kinds of loans you have and whether you’re eligible for an interest-free deferment.
In a forbearance, you should expect interest to accrue on your loan no matter what kind it is.
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