How to Adjust Your Loan Payments If Your Income Changes

Point of Interest

 Adjusting your loan payments when your income goes down is possible through several different options, including refinancing, debt consolidation, lender-specific programs, forbearance and loan-modification programs.

Most people don’t take out a loan expecting to have issues making payments in the future. But sometimes life has a creative and unexpected way of upsetting the balance. When your income changes or life happens, you may be left trying to figure out how to keep your financial situation intact and continue to make good on your loan payments.

The good news is that you have options. Loan providers don’t want you to default on your payments. When that happens, it’s not good for you, but it’s not good for the lenders either. If you default on an unsecured loan, the lender does not get paid anymore. If you default on a secured loan, the lender is forced to find a way to recoup its losses by selling the collateral, which is not the business the lender is in.

When life happens or your income changes, it’s best for everyone if there is a way to help adjust your payments.

Personal loans

With unsecured personal loans, you won’t have collateral at risk. However, defaulting on a personal loan can still lead to a potential lawsuit and your credit being destroyed. Thankfully, you’ve got options.

First and foremost, reach out to your lender. Many personal loan lenders have plans in place to help you with a payment plan to stay on track. Additionally, the lender might have a plan for you to skip a few payments, a process known as forbearance. This doesn’t change the size of your payments, but it does give you more time to get caught up. Adjusting your loan payments is not always about the dollar amount, but it may be about the frequency of payments as well.

If your loan is for a short term, look into refinancing it into a longer-term loan. You’ll pay more in interest over the life of the loan, but your monthly payments should come down. If you have multiple loans, that’s another reason to consider consolidating for a longer-term. Much like with a refinance, you may pay more in interest, but your payments can come down to a manageable level.

Student loans

Your options for adjusting your student loan payments will vary based on whether your loans are private or government-backed student loans. Federal student loans give you several different options to adjust your payments. Currently, there are eight different repayment plans for federal student loans. At any time during your repayment process, you can switch to the plan that best fits your needs. The Loan Simulator Calculator at the official Federal Student Aid website will give you the ability to plug in your loan information and see your available options.

Personal student loans have a much more limited list of available options. Like personal loans, you can consider refinancing or consolidating your loans to adjust your payments to fit your needs. Some lenders may offer unique plan options similar to what’s available with federal student loans. The best advice if you’re having trouble keeping up with student loan payments is to reach out to your private student loan provider and be candid about your situation.

Auto loans

Staying current with auto loan payments on your car when your income changes is challenging. This is especially true when you realize that defaulting on your payments can result in your car being repossessed. The situation could leave you and your family without a way to get to and from work, which could make the problem at hand much worse. 

The first thing you want to look at is whether you have any equity left in your car. If you owe less than the car is worth, you may be able to sell the car and purchase a less expensive car with lower payments. Additionally, you could sell the car and look into more affordable forms of transportation, like public transit. The additional cash in your pocket might help with other financial obligations.

If you’re set on keeping the car, reach out to your lender first and see if the company has any ways to help. Most lenders want you to succeed because it keeps payments coming in. The repossession and resale of a car can be expensive and is not the ideal road for anyone involved. If the lender doesn’t have anything available, look into refinancing or consolidating the loan with your other debts. By extending the lending period, you may be able to significantly lower your payments. Yes, you will probably pay more in interest, but you’ll be able to stay up on payments and keep your car.  

Home equity loans and HELOCs

When you need to adjust your payments on a home equity loan or line of credit, it can be scary. Your house is where you live, and the fear of losing it is real. You may have options.

First, reach out to your lender. Be candid about the situation and explain all the details. Your lender does not want to foreclose on your home, especially if the primary lender is a different company. Many banks offer loan modification programs that may be able to help.

For example, Bank of America’s home equity loan modification program is designed for people experiencing financial hardship. The bank will work with you to design new terms and then put you on a trial period for a few months. If you’re able to meet the new terms, the bank will make those changes permanent.

The final word

When your income changes unexpectedly,  you need to find a new way to meet your financial obligations. But lenders may be willing to work with you, and  you won’t know what the lender can do until you reach out. Gather all your available options first, and then make the best and most informed decisions you can.

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Jason Lee

Personal Finance Contributor

Jason Lee is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.