It is Hardship
Life happens, financial situations change — and sometimes the bills you previously breezed through each month become difficult to cover as a result. Fortunately, even if you're unable to pay one or several bills due to life circumstances, you still have options for getting your bills paid — just in a different way than you might normally expect.
Lenders are just as keen to receive your payments as you probably are to make them — and they'll accept payments in various ways, depending on your situation. That's one reason why many lenders offer hardship programs. These programs allow borrowers to apply for assistance, and the lender and the borrower work together to find a solution that keeps the borrower from defaulting on their loan. If this kind of program could be helpful to you, learn more about how loan hardship relief works and what you can expect, based on the type of loan you need assistance with.
Lenders loan money with the understanding that borrowers will repay the initial loan money back, along with interest on the amount of the loan. When a lender extends a loan for a high-value item, such as a home or car, that item serves as collateral. This means that the lender can take the item back from the borrower if the borrower stops making payments. Lenders would much rather remain in the business of lending money than get involved in the business of selling cars and houses to recoup their losses. That's a big reason why lenders offer loan hardship relief programs and are willing to work with borrowers who are experiencing financial hardship.
To lenders, a hardship is generally any life event that reduces your monthly income or requires you to apply your income to expenses that are more urgent than monthly bills. Examples of potential hardships include the loss of a job, an injury, a natural disaster or the need to act as a caregiver for a family member.
Usually, hardships are temporary setbacks. Although you may not be able to make payments for a month or longer, the lender anticipates that you'll eventually "get back on your feet" and resume making your normal payments. Hardship program parameters can vary by company and loan type, but they all offer some form of relief from the burden of missed payments. Deferments waive both interest and payments temporarily, and forbearances only waive payments. Other hardship programs may lengthen your loan term to permanently lower your monthly payment amount.
Credit Card Hardship Programs
Some credit card companies offer hardship programs. To enroll in a hardship program with a credit card company, you'll need to directly call the bank that issued your credit card, explain your hardship and negotiate new terms with a representative. It's important to note that not all banks offer these programs, and the best way to find out if yours does is to call and ask.
Each company has different policies, and the company has the right to offer different terms — based on the nature of the hardship, past payment history and creditworthiness — to different customers. Often, hardship programs reduce your monthly minimum payment, change your monthly payment due date or change the amount of interest that accrues for past spending during your hardship period.
It's important to be aware of your financial situation and ensure that the new terms the issuer offers are affordable for you. If they're not, let the representative know, and see if you can renegotiate.
Auto Loan Hardship Programs
Typically, if you miss making two or three payments in a row toward your auto loan, you become subject to repossession. This means the lender — with whom your vehicle is serving as collateral for the loan — can seize the car and take it back from you. Even if the lender doesn't repossess your vehicle, missing payments can negatively impact your credit score. Many lenders will begin imposing late payment fees as well. The contract you signed when you purchased the car should outline the conditions that'll allow the lender to repossess it.
An auto loan hardship program can include a payment forbearance or deferment. Sometimes auto lenders extend the term of the loan for as many months as you were allowed to miss payments. For example, if your purchase contract stipulated a three-month period before repossession, you may be able to add three months onto your term. This redistributes your payment amounts across a longer period of time, making them smaller in the process.
Because auto loans are completely commercial with no government subsidies, hardship programs are entirely based on each lender's policy. If you experience hardship, contact your lender directly to see what kind of assistance you're eligible for. In emergencies, auto lenders often extend special auto loan hardship relief programs. For example, Ford Motor Company is one of many major auto lenders that offered borrowers payment extensions during the coronavirus pandemic. When a large region is impacted by a natural disaster, some auto lenders offer deferments to affected ZIP codes.
Mortgage Loan Hardship Programs
With a mortgage loan, forbearance is a provision in which the lender agrees to allow the borrower to skip a specified number of months' worth of payments. Your payments aren't due during those forbearance months, but you'll eventually have to pay the money back at a later date. Some lenders require a lump sum payment of all the missed months at the end of the forbearance period.
FHA, VA and USDA loans, all of which are backed by the government, usually don't require lump-sum payments. Under the CARES Act, homeowners with these loan types could declare a hardship and ask for a forbearance without supplying any proof of the hardship. In usual circumstances, however, you may have to submit proof of other bills and proof of income to enroll in a hardship relief program.
Lenders of conventional loans also have specific hardship programs. To apply for a hardship program, contact your mortgage lender to find out what options are available. You'll likely need to fill out an application or send a letter explaining the cause of your hardship, and you may also need to provide proof that demonstrates how the hardship is affecting you. The letter should explain why the hardship is happening, how long the hardship is likely to continue and why you can't pay the bill. You should also suggest a possible solution and express a clear desire to keep making payments on time.
If you face hardship, you can also apply for loan modifications. These are usually reserved for situations in which the hardship will be permanent or cause a long-term reduction in the amount of monthly income you receive. A modification changes the terms of your loan. It may extend the length of the loan, change the interest rate or even forgive some of the principal balance. Regardless of the method, the purpose of the modification is to decrease your monthly payment amounts, making your mortgage more affordable for you.
How to Enroll in One of These Programs
When you're experiencing hardship, communicating with your lender is extremely important. Lenders often prefer that their customers find a way to pay in full on time, so they don't always advertise their hardship programs as an alternative option. However, it's always worth asking your lender if they offer hardship programs. Not all customer service representatives are authorized to enroll customers in hardship programs, so you may need to call the lender and ask to speak to a department supervisor. If your lender offers a relief program, the customer service rep should be able to guide you to the correct point of contact.
Depending on the way your lender reports information about your loan to the credit bureaus, enrolling in a loan hardship relief program may impact your credit score. While this isn't an ideal situation, enrolling in a hardship program won't impact your credit score and history as negatively as missing a few payments will. If a hardship program doesn't meet your needs, debt consolidation loans may be a viable option. These are high-interest loans, but making one monthly payment can be more manageable than juggling several due dates and minimum payments.
Source: https://www.askmoney.com/loans-mortgages/loansmortgages-loan-hardship-relief-programs?utm_content=params%3Ao%3D1465803%26ad%3DdirN%26qo%3DserpIndex&ueid=3681a0a3-87d8-491c-8ddf-8ed7b33d09e3
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