Not many people have heard about repayment holidays on personal loans. This feature, which is not present on all loan products, provides the borrower with the possibility to interrupt the loan repayment for certain periods of time whenever affordability turns difficult or impossible due to unexpected circumstances like income reduction or unemployment. Repayment holiday also known as forbearance is an interesting characteristic of certain loan types that ought to be considered when applying for a loan.
What Are Repayment Holidays? What Is The Use?
If for some reason you need to take a break from repayment of a loan, if you just stop or delay the repayment of a single installment, your credit would be damaged. However, if you had the authorization of the lender, the lack of payment would not be reported as a delinquency. That is what repayment holiday means: the possibility to stop repayment of the loan for a specific period of time without credit consequences.
The reasons for making use of a repayment holiday are varied. Usually, due to unexpected circumstances, the loan repayment may turn up to be too onerous because of an income reduction or because of unemployment. Sometimes you just would like to have a break during vacations to be able to have more disposable income for other expenses. Whichever the reason is, if you need a break or you know you will, you have to make sure that the loan terms include repayment holiday.
Conditions To Obtain Access
Not all lenders offer repayment holidays on their loans. Basically, in order to offer repayment holidays the loan repayment schedule must last more than a year. Therefore only certain unsecured personal loans feature this loan term, but most home mortgages and home equity loans today include some sort of repayment holiday to provide some ease to the borrower's finances during harsh periods of time.
Repayment Holiday At The Beginning
For certain loan types, you can get a repayment holiday at the very beginning of the loan program. This of course needs to be agreed at the time of approval. On other loan repayment schedule periods you can opt for a holiday at any given time but if you will need it at the beginning it must be agreed from starters. Basically, you do not start repaying the loan till after a few months since it was approved. This is especially useful when the money lent is put into some form of investment like startup business loans where you need some time for it to start generating revenues so you can repay the loan with ease.
Repayment Holiday At Different Times
In order to opt for repayment holiday during other times, you will need to comply with some policies. For instance, you will need to do so after the first six months of loan repayment and before the last six months. This is usually to avoid altering the lenders accounts and to provide them with enough time to make provisions. Moreover, there are certain consecutive payments required to be eligible for repayment holiday and if at any time, you fail to repay an installment or you pay late, you may lose the ability to request a repayment holiday.
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