Deferring a Loan: Who Wins?

When a borrower gets too far behind, the credit score is affected. Sometimes a lender helps out by offering to defer a payment, moving it to the end of the loan. That extends the loan a little, but it could be just the breathing space the borrower needs. By the following month, the loan is back on track.

If the borrower agrees to defer the loan (usually in writing), the lender can convert the unpaid interest to principal. The lender may also choose to adjust the payment amount due for the remainder of the loan. A common mistake is to think the entire amount due can be added to the principal balance in exchange for deferring one or more payments. This isn't correct. Only the outstanding interest should be converted to principal.

Moneylender Professional loan servicing software makes it simple to defer payments using the Loan Menu.  The borrower gets to stay current on a loan when finances are too tight to continue making payments, and the lender gets to capitalize some interest.  If done with care, deferring a loan means everybody wins.