{"id":50617,"date":"2024-01-02T07:30:47","date_gmt":"2024-01-02T15:30:47","guid":{"rendered":"https:\/\/financer.com\/?page_id=50617"},"modified":"2024-05-06T07:57:10","modified_gmt":"2024-05-06T14:57:10","slug":"forbearance","status":"publish","type":"page","link":"https:\/\/financer.com\/loans\/glossary\/forbearance\/","title":{"rendered":"What is Forbearance?"},"content":{"rendered":"\n

What is Forbearance?<\/h2>\n\n\n\n

Forbearance is a financial agreement typically made between a borrower and a lender, wherein the lender agrees to temporarily reduce or suspend loan payments for a specified period. <\/strong><\/p>\n\n\n\n

This arrangement is often made during times of financial hardship for the borrower, such as unemployment, significant medical expenses, or other extenuating circumstances that impact their ability to make regular payments.<\/p>\n\n\n\n

For Example:<\/h4>\n\n\n\n

During the COVID-19 pandemic, “student loan forbearance” became a widely discussed topic. This was because the pandemic caused a lot of financial problems for people, like losing jobs and general economic instability. <\/p>\n\n\n\n

To help out, governments and lenders around the world put in place forbearance policies. These policies allowed people to temporarily stop paying back their student loans without extra interest adding up, giving them much-needed financial breathing room during the tough times of the pandemic.<\/p>\n\n\n

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Forbearance Definition:<\/h3>According to Cambridge dictionary<\/a>, forbearance is the quality of being patient and being able to forgive someone or control yourself in a difficult situation.<\/div>\n\n
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Key Aspects of Forbearance<\/h2>\n\n\n\n
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  1. Temporary Relief:<\/strong> Forbearance is designed as a temporary solution, not a permanent fix. It provides immediate relief for borrowers facing short-term financial difficulties.<\/li>\n\n\n\n
  2. Agreement Terms:<\/strong> The terms of forbearance agreements can vary. Some may reduce the monthly payment amount, while others may suspend payments entirely for the duration of the forbearance period.<\/li>\n\n\n\n
  3. Repayment:<\/strong> After the forbearance period ends, the borrower must resume making regular payments and typically must also make up for the missed or reduced payments. This can be done through a lump sum payment, an extended loan term, or an increased monthly payment amount for a set period.<\/li>\n\n\n\n
  4. Interest Accrual:<\/strong> In most cases, interest continues to accrue on the outstanding mortgage balance during the forbearance period, which can result in a higher total repayment amount over the life of the loan.<\/li>\n\n\n\n
  5. Credit Impact:<\/strong> Unlike foreclosure, forbearance is less likely to have a severe negative impact on a borrower’s credit score. However, it may still be reported to credit agencies and could potentially affect future creditworthiness.<\/li>\n\n\n\n
  6. Lender Approval:<\/strong> Forbearance must be negotiated and approved by the lender. Borrowers cannot unilaterally decide to stop making payments without reaching an agreement with their lender.<\/li>\n<\/ol>\n\n\n
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    What Types of Loans can go into Forbearance?<\/h2>\n\n\n\n

    While it is commonly associated with mortgage loans, forbearance can apply to various types of loans and credit agreements. Here are some other contexts in which forbearance can occur:<\/p>\n\n\n\n