An approved forbearance agreement is a legal agreement between a borrower and a lender that temporarily pauses or reduces the borrower`s monthly payments. This agreement is designed to help borrowers who are facing financial difficulties, such as loss of employment, illness or other unexpected events that have impacted their ability to make regular payments.
Forbearance agreements can be approved for a number of different types of loans, including student loans, mortgage loans, and credit card debts. With the ongoing COVID-19 pandemic causing widespread financial hardship, many lenders have been offering forbearance agreements as a means of support for borrowers.
The terms of an approved forbearance agreement can vary depending on the lender and the borrower`s circumstances. Generally, the agreement will specify the duration of the forbearance period, which can range from a few months to a year or more. During this period, the borrower is not required to make payments, or may be required to make reduced payments, depending on the terms of the agreement.
It is important to note that while an approved forbearance agreement can provide temporary relief from financial stress, it does not eliminate the borrower`s obligation to repay the loan. Interest will continue to accrue during the forbearance period, which may result in higher overall costs in the long run.
Additionally, it is critical that borrowers understand the potential impact of a forbearance agreement on their credit score. While the agreement itself does not impact credit, if the borrower fails to make payments as agreed during the forbearance period, this will negatively impact their credit score.
In conclusion, an approved forbearance agreement can be a helpful tool for borrowers who are struggling to make payments due to financial hardship. However, it is important that borrowers carefully review and understand the terms of the agreement, including the potential impact on their credit score, before entering into the agreement.