COVID + CREDIT: How to Negotiate with Lenders
During the Covid-19 pandemic, lenders may make accommodations for you, but you need to know how to ask for relief and negotiate your options. [Duration: 2:47]
Reading time: 5 minutes
Contrary to conventional wisdom, lenders are often willing to negotiate with customers who want to lower their interest rates, develop payment plans or pursue other arrangements to better manage their debt. Especially during the Coronavirus/Covid-19 pandemic, lenders may be more willing to make accommodations for you as long as you contact them to strike an agreement.
If you’re falling behind and unable to make your minimum monthly payment on your credit card or other debts but you’ve been a reliable borrower in the past, contact your lender to see if they would consider reducing your interest rate or finding another way to make your loan more manageable.
Ways to negotiate
- Lower your interest rate. Arranging for a reduced interest rate is one of the most common requests consumers make to credit card issuers. In many cases, securing a lower rate is as simple as contacting the card issuer and asking for it. If you have an established track record of making on-time payments, you have a good chance of success.
- Create a repayment plan. If you’re temporarily unable to make even your minimum payments, you may have alternatives to a loan default, which can create a blemish on your credit reports that lingers for years. Among the options are two types of repayment plans: forbearance agreements and long-term repayment plans.
Forbearance agreements create a set period of time in which you do not have to make payments. Although interest will often continue to accrue during this time, a forbearance agreement will enable you to temporarily retain some cash without the chaos associated with default. A long-term repayment plan typically lets you pay back your debt with reduced or no interest.
- Look into debt forgiveness. Often seen in the real estate context, debt forgiveness is the elimination of all or part of a legal debt obligation. Instead of going through the foreclosure process, the mortgage lender will agree to accept the property deed as full payment, even if the home’s value is not enough to completely repay the loan.
This sort of debt relief must be reported to the IRS as taxable income. For example, if you earn $25,000 a year and your lender grants debt forgiveness in the amount of $5,000, you should report your taxable income as $30,000, because the IRS considers the settlement as money that has been given to you. There is a loophole, however: If the debtor is insolvent immediately before and after the forgiveness, the amount does not have to be declared as income.
- Consider loan consolidation. Loan consolidation, or the combination of multiple loans as one debt through a single lender, is an option if you are struggling with a number of loans with multiple servicers, have variable interest rates or need to lower your payments to more easily pay the amount due each month.
Although a consolidation typically means more interest and a greater number of payments, you should be able to lower the amount of your monthly payments, fix your interest rate and simplify repayment by having one lender.
- Offer a one-time payment. A credit card issuer will sometimes accept a lump sum payment of less than the total owed. If you’re a few months behind on your payments and there is a real chance you’ll declare bankruptcy, the issuer may accept a one-time payment, as it can actually save the lender money in the long run.
How to negotiate
If you have decided that negotiating with your lender is the best option to help you get out from under a burdensome debt load, the following are some suggestions on how you may approach the negotiations.
- Timing is everything. The key to successfully negotiating with your lender is to have a recent history of on-time payments. If you’ve made 12 to 24 consecutive payments on time, and you’ve used your account but shown an ability to control your balances, you’ll be well-positioned to ask for a better rate. Even if you don’t have a pristine payment history, lenders understand the magnitude of the current global situation and may still be more understanding.
- Persist. As with many negotiations, persistence is critical. Always be courteous when you explain your situation. If necessary, ask to speak to a manager, and don’t be afraid to elevate the conversation to that manager’s supervisor. Remember to keep accurate debt records so you’re armed to better explain your situation when you speak to the credit card issuer.
If you’ve previously been turned down for a reduced interest rate or other concession but your situation has improved in light of recent on-time payments, try again and continue to call.
Digging out from under a significant amount of debt is no easy task. If it helps to set your mind at ease, remember that your lender will generally be willing to work with you to make a settlement possible, especially during the Covid-19 pandemic and its aftermath. If you follow some of the suggestions in this article, you may be able to make real improvements to your credit situation.