Modern Loan Software Applications: Browser Based vs Web Based
In the modern lending industry, understanding software differences between browser based and web based is essential. Although these terms are often...
In the finance industry, being able to collect on accounts and keep delinquency down is crucial to maintaining a good line of credit with your financing bank and curbing the number of individuals inclined to charging off. One method of assisting with individuals in the early stages of delinquency or experiencing a hardship in life due to circumstances they may not have control over is offering a deferment or due date extension.
A deferment or due date extension allows the finance company to advance the due date forward to the benefit of their customer. There are two parts to a deferment:
Deferment charges help institutions who offer a deferment to obtain some monetary benefit in return for advancing the due date. The amount of the charge is dictated by the state, institutional policy, or a combination of the two. It is important to note that in certain states under certain regulated products, it is illegal to process a deferment and collect a fee. Please check your state regulations to ensure you can offer this service and determine whether there is a defined amount you can legally charge. Some of the variations in deferment calculations we have seen over the years are as follows:
It is recommended for the institution to have documentation on hand how each deferment method they offer is calculated.
Institutional policies are put into place to control the circumstances in which a deferment can be run. For example, if no policy was in place to determine the number of deferments allowed, and the deferment charge was 0.00, the CSR would make every delinquent account in their queue current by running a deferment. Institutions should have written policies distributed among employees defining the conditions for a deferment to be run and how many deferments can be charged in a year and over the life of the loan. If possible, systems should be in place to help enforce the institution’s policies. Keep in mind that those systems may need exceptions built in for hardship circumstances. Here are just a few of the deferment rules we have seen:
Before you believe that deferments will completely solve your delinquency woes, there are some cautions you need to be aware of.
Most institutions we work with offer their customers the ability to advance their due dates using a deferment transaction. This is an important tool for them to help their customers who may be going through hardship and need assistance in reducing their delinquency. We recommend each institution which currently offers a deferment to have a written document showing how the method calculates the deferment charges as well as the policies that govern those deferments.
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