Forbearance Agreement Definition
A forbearance agreement is a legal document that outlines the terms of a loan modification or repayment plan. The agreement is between the lender and the borrower, and it can be used to extend the length of the loan, lower the interest rate, or reduce the monthly payment amount.
The forbearance agreement might also stipulate that late fees will be waived during the period of forbearance. In some cases, the principal balance of the loan may be reduced. Forbearance agreements are typically used when a borrower is experiencing financial hardship and cannot make their regular payments.
It’s important to note that a forbearance agreement is not the same thing as a loan deferment or forbearance. A deferment allows you to postpone making payments on your student loans for a set period of time, while forbearance temporarily suspends your payments.
