When you take out a loan on a home, car, or other big-ticket item, you of course expect to be able to pay back the loan with little if any difficulty. Unfortunately, it does not always turn out that way. Whether you lose your job or simply find out you’re in over your head with the monthly payments, a loan modification may be the answer. If you are seeking a loan modification, here are four types you may be considering.
As you know, the interest rate on your loan may be the biggest reason why you are having problems making your payments month after month. When you seek a modification, the lender may choose to reduce your interest rate temporarily or for the duration of the loan, depending on your circumstances and how much they are willing to work with you. Since a lender would rather have you pay off the loan, they are more likely to grant this modification.
If you need a longer period of time to pay back your loan, you can seek a loan extension. This is common with mortgages, and can often make the monthly payment much easier to manage. When seeking loan modifications of this nature, you may be looking to extend a 15-year loan to perhaps a 20-year loan. While you will ultimately pay more in interest charges, the tradeoff will be a lower monthly payment.
If you are perhaps facing foreclosure on your home or repossession of a vehicle, you may ask your lender to work with you to create a new repayment plan. If you do this on a mortgage, you will often need to make a rather large upfront payment to your lender. Should you do this, a repayment plan will be put in place that will allow you to make payments until your debt is paid in full.
A short-term loan modification, forbearance, means your lender is willing to suspend or greatly reduce your payments for perhaps a few months, which can be crucial if you have had a sudden job loss or unexpected medical emergency. However, you will still be expected to pay the full amount of the loan. To do so, your lender will add the deferred payments to the end of your loan, so keep this in mind and plan accordingly.
While you may be apprehensive about seeking a loan modification, explaining your situation to your lender may result in a modification that makes your financial future much easier.
Anica is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.