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Extraordinary times sometimes call for taking out-of-the-ordinary action. When finances are tight, and they are for a great many people these days, skipped or deferred payment plans might give you some welcome breathing room. But what really happens when you skip (or defer) payment on your loan? Here’s what you need to know.
What Happens When You Skip a Payment?Skipping or deferring a loan payment means that your lender has authorized you to skip a payment on that loan or credit card. The lender might also allow for reduced payments for some specified period of time. Not all lenders allow payment deferrals. UFCU allows Members to request skipping payments for up to 90 days.
Whether you skip a full payment or make a reduced one, it is important to know that you are still liable for the outstanding balance to your lender. Your lender will add that amount to the end of your loan, during which time your account continues to accrue interest.
Will Skipping Payments Hurt My Credit Score?The short answer is no. If you have the lender’s permission and are meeting its requirements, even a deferred payment is considered to be meeting the loan repayment obligations. Your loan will not be listed as past due, or as missed payments, on your credit report.
When Does Skipping Payments Make Sense?Skipping your loan payments is not a free ride. Since you still are accruing interest, and extending the ultimate payback time, a deferral does come at a cost. But if you face a job layoff, furlough, business shutdown, or unexpected medical crisis, deferring payments for a temporary period may help you weather the storm. In the meantime, you can look for new work opportunities and reduce non-essential expenses. It may be time to trade the new car for an older model with a lower price tag, and lower monthly payment, for example.
Alternatives to Payment DeferralIf you have steady income, but find yourself having trouble making ends meet, refinancing your loan may free up funds. All those years of maintaining a good credit score will pay off now, as lenders consider credit score when evaluating a borrower’s creditworthiness and interest rate.
Loan consolidation may be another option. If you carry several loans with higher interest rates, you can consider consolidating them into one loan, often with a lower interest rate. Restructuring your loans into a lower-rate personal loan can save you thousands of dollars in interest, and improve your monthly cash flow.
Consult Our Financial ExpertsWant to evaluate your options? Give us a call anytime to chat with a personal financial representative and learn how we can help.
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