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Many banks, credit card issuers and other lenders have promised to help those impacted by the coronavirus pandemic. They’re offering to defer or reduce payments and waive interest charges and rebate fees for those who have lost jobs, had their hours reduced or otherwise lost income to the COVID-19 crisis.
The help usually isn’t automatic, however. You have to ask for it — and ask the right way.
“In many cases, you only get the help if you contact your creditor and mention that you need relief due to the coronavirus situation,” says Lauren Saunders, associate director of the National Consumer Law Center. “And that’s very frustrating because it’s very difficult to get through to your bank or lender.”
Many financial institutions are encouraging people to reach out digitally — through live chats or messaging on the companies’ sites or in their mobile apps. However you connect, there are important questions that need to be answered.
‘WHAT STEPS DO I NEED TO TAKE TO QUALIFY?’
You can start your research on the financial institution’s site to see what kinds of help may be available and how to apply. Generally, you’ll want to confirm the details with a human being, including the steps you must take to apply, says Saunders, who advises keeping a record of the conversation and what you were told. You can take written notes of phone calls, including the time, date and name of the company representative, or take screenshots of electronic communications.
“Some people assume that (a hardship program) will automatically kick in if they just miss a payment, which is very dangerous to assume,” says Bruce McClary, a spokesman for the National Foundation for Credit Counseling.
Skipped payments can lead to credit score damage and collection calls, and could limit the hardship options available.
There’s one forbearance program that is automatic, but it pertains only to student loans held by the federal government. Payments on those loans are suspended until Sept. 30, and interest has been waived.
‘EXACTLY HOW DOES IT WORK?’
Companies take different approaches to their hardship programs. One lender may allow you to skip payments but charge you late fees; another may waive the fees but report skipped payments to the credit bureaus. Most will continue to charge interest, and some will expect you to make a lump sum payment of the amount you skipped.
“This is not free money,” Saunders says. “It’s just putting off a debt that you’ll have to repay along with your other debts later.”
Even if your financial hardship is over, you may not be able to cough up several months’ worth of payments at once, McClary notes.
“The last thing you want is to have to drop some big lump sum of money on somebody when you’re in a financially fragile state,” McClary notes. “It’s important to try to negotiate different terms.”
Ask if the payments can be tacked on to the end of the loan or paid off over time, McClary suggests. Also request that the account be reported “paid as agreed” to the credit bureaus to avoid a potentially large hit to your credit scores.
‘HOW LONG WILL THE HELP LAST, AND HOW CAN IT BE EXTENDED?’
A hardship program may last three to six months, but you may have the option to extend the relief if you ask.
If you can’t make the payments on your federally backed mortgage because of the coronavirus pandemic, for example, you have the right to skip payments for nearly a year. The CARES Act requires lenders to give affected borrowers forbearance of up to 180 days, with the option to request an additional 180 days after that.
Lenders may not make that clear, however. Some borrowers who asked for mortgage forbearance in recent days were told they would owe a lump sum after three months, with no mention of the potential extensions.
These rules apply only to mortgages backed by federal entities, including Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Veterans Administration (VA), the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of Agriculture (USDA). But most mortgage lenders have some type of hardship program or loan modification options.
Don’t put off asking for help if you’re struggling, since it’s not clear when coronavirus-related economic disruptions will end. It’s better to have more help than you need than to need more help than you have.