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An arrangement to pay is the term given when a customer is struggling to repay their loan, but agrees with the lender to pay in small amounts over a longer period. The borrower is unable to repay their loan on time, so they make ‘an arrangement’ to help clear the balance under different, but more flexible terms for the borrower.

These terms will differ from the regular terms attached to a loan and typically refers to how long the repayment term is or in how many increments a loan will be repaid in. If a customer owes $100, this could be ‘arranged’ into 4 payments of $25 over 4 months to help the customer repay and get back on their feet, often freezing any additional interest or fees on top.

An arrangement is used for all kinds of products including mortgages, personal loans and even online payday loans.

Key Points:

 

  • An Arrangement to Pay occurs when a borrower and lender agree to restructure the terms of a repayment contract.
  • You should only seek an Arrangement to Pay if you absolutely can’t afford to pay back your debt. Repaying your debts as agreed is essential to maintaining a healthy credit score.
  • To secure an Arrangement to Pay you will need to contact your lender and discuss why you need a new repayment plan.
  • An Arrangement to Pay will leave a mark on your credit history. This is why it’s best to avoid them.

 

Should I Seek An Arrangement To Pay?

 

Not unless it is necessary for you in your current financial circumstance. If you are financially stable and comfortably able to repay your loans, then you most likely don’t need one.

If, however, you have lost a job, been hit with unforeseen expenses, or are just struggling, you may need one. This is because you may not be able to repay your loans in accordance with the original terms of your loan agreement.

You should only take out an arrangement to pay if you need one. Adjusting a payment plan may cause lenders to view you as unreliable, and could make them unwilling to loan to you in the future, or to charge you higher interest.

 

How Do I Secure An Arrangement To Pay?

 

You need to get in contact with your lender. You will need to explain to them your current financial situation and why you will be unable to repay the loan in the way that you agreed.

Lenders will often be willing to arrange an alternative payment plan. Remember, their money is on the line. It is favourable for them to arrange a new plan that will ensure they receive their money without having to chase it or threaten legal action.

Your lender may offer you a longer time frame to repay the loan in smaller chunks.

 

broken car

Arrangements to Pay can be necessary for borrowers who have incurred unforeseen costs

 

Will An Arrangement To Pay Impact My Credit History?

 

Yes, an arrangement to pay will be clearly marked on your credit history for at least five years after it is arranged and will show up on future credit checks. This will be visible to lenders and may act as a disincentive to loan to you. This is because it could imply that you are unreliable and they may think that their money is not safe in your hands.

Even so, not all lenders will view a previous arrangement to pay harshly. Many lenders are understanding of financial hardships – after all, that’s their industry. In that case, you will likely be able to secure a loan – although it may be subject to higher interest.

 

maximum-loan

Arrangements to Pay will be clearly marked on your credit history

 

What Could I Do Instead?

 

Don’t panic! There are always different roads to go down when it comes to repaying debt. You could get in touch with a financial adviser who can recommend the best options for you.

You should also check whether you are entitled to any government support, which could be the case if you are out of work. Of course, you could turn to family or friends for advice or even for funds if this is feasible for you and for them.

Finally, you could consider creating a budget. This can be done through downloading a budgeting app to your smartphone or tablet. These help you plan ahead and get on top of your repayments. Apps such as Mint allow you to recognize where you are overspending and curb those habits.

Alternatively, you could create a manual budget by tracking your income and outgoings. You could make slight lifestyle changes, like being more attentive to conserving energy, which will lower your bills and enable you to save more.

If none of these are available to you or  sufficient, you could contact your lender and seek an arrangement to pay.

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