To Defer or Not to Defer: Managing Your Loan Payments

To Defer or Not to Defer: Managing Your Loan Payments

When it comes to reacting to a global crisis, your finances can often be the most immediately impacted aspects of your life. And crunching the numbers on your household budget, you may find that your loan payments may not be as manageable as they were a few month ago.

So how should you approach the idea of deferring your loan payments, and what options are available to you?

What Does Deferral Mean?

Many financial institutions and lenders are offering borrowers the opportunity to defer their payments for a certain amount of time—whether it’s a credit card, an auto loan or a student loan. While this is a viable option for many who may temporarily be without the same level of income they’d normally be receiving, it’s important to note one key fact—deferral is not the same as forgiveness.

Is Deferral Right For Me?

While a deferral offers temporary relief by way of delaying your required payment for a month or two, it also means that the maturity date of your loan will likely be extended beyond the original life of the loan, often adding interest. For some, this might be the perfect solution—your monthly bills are relaxed for a couple months until your household income is back to normal. But for others, it might not be ideal, as lengthening the repayment schedule long-term may be a detriment. It really is dealer’s choice.

Do I Have Other Options?

Sioux Falls Fed members have several potential options in front of them when it comes to managing loan repayments during the COVID-19 pandemic and economic aftermath. These include payment deferrals, as well as refinancing via alternate collateral to lower payments and consolidating debts. Working with a member services officer, you have the opportunity to restructure the loans you have with your credit union to make your payments more manageable, in case deferral isn’t your preferred route.

What About Forbearance?

While the forbearing of loans might be presented as an option by your lender, keep in mind that this is not the same as deferral or the options provided by Sioux Falls Fed that are outlined above. It’s important to know what a forbearance entails before opting into one. The primary difference is that a forbearance operates much like a non-interest-bearing balloon loan that is due in full post-forbearance. So, for example, a mortgage forbearance might reduce your loan payment from $1,000 to $0 for three months, but by month four, when the forbearance period is finished, a paid-in-full $4,000 amount will come due. Unlike a deferral, this maintains the same maturity date for the life of your loan but demands a larger one-time payment in the near-term. At this time, Sioux Falls Fed is not offering this type of option on mortgages, but is rather focusing on deferrals, consolidation and restructuring to provide the most relevant financial services to help members live better.

Curious about how you might get a little relief on your monthly budget? Find out what Sioux Falls Fed can do to relieve your loan payments by contacting our team today.