What Is a Forbearance Period on a Loan?
A forbearance can save your credit rating and help you catch up on bills. Most loans do not automatically come with this option; if your lender approves a forbearance, it probably means that you are in financial straits. Forbearance is not a permanent solution to overwhelming debt but temporary help for managing bills; there are better ways to get help for your debt.
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Identification
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A forbearance period on a loan is a temporary period of time during which you do not have to make payments on the loan principal. Interest accrues on the debt during the forbearance period, but you usually do not have to pay it until you resume regular payments. The lender usually capitalizes the interest into the balance after the forbearance period ends. Typical forbearance periods last from one to three years.
Obtaining Forbearance
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Lenders usually do not authorize a forbearance unless the borrower has a good reason, such as unemployment; private lenders never have to approve a forbearance. Federal student loans come with automatic forbearance periods for certain hardships, such as payments exceeding 20 percent of your income and medical problems, according to legal website Nolo.
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Alternatives
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Deferment is closely related to a forbearance. In a deferment, the lender freezes the loan until some point in the future; interest does not accrue on the balance, and you do not make payments. Usually, the conditions for obtaining a forbearance or a deferment are the same.
Cancellation of the loan is even better for the borrower than deferment or forbearance. Convincing a lender to cancel a loan is the hardest option to obtain, because it means the lender has decided it cannot profitably collect on the account, such as when you are about to declare bankruptcy.
Tip
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The only way to get forbearance is to talk to your lender and ask for it. If you cannot afford the loan payments now, consider your ability to pay in the future and how adding life to the loan makes it more expensive. You could ask the lender for other concessions to make the loan cheaper. For instance, the creditor might lower your interest rate or eliminate late-payment penalties. In general, lenders would rather modify a loan than risk never receiving payment.
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