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An Arrangement to Pay is an agreement between borrowers and lenders to restructure loan terms to help borrowers who are struggling to repay the loan. This can be a helpful solution to those unable to keep up with their current repayment plan; however, there are certain drawbacks.


What is an Arrangement to Pay?

An Arrangement to Pay is an agreement made between the lender and a borrower to reorganize and restructure the loan terms. If you are struggling to repay your debt, speaking to your lender is always a sensible first step. In most cases, the lenders will be happy to adjust the terms of your loan and make it easier for you to repay your debt.

Usually, this will mean extending the loan term period so that you are paying off smaller monthly amounts over a longer period. An Agreement to Pay is a way of regaining control of your debt before you get caught up in a negative cycle. This can be for any type of loan, including mortgages, personal loans and also payday loans.

As part of the Arrangement to Pay, the lender will accept a borrower’s request to change the conditions of the loan (for example, lower the cost of scheduled monthly payments). Once approved, this arrangement will then appear on a borrower’s Credit Report.


Who Might Need an Arrangement to Pay?

If you are currently struggling to meet your monthly repayment plan and re beginning to fall behind in payments, an Arrangement to Pay may be a good option for you. At the start of a loan term, lenders and borrowers agree on a realistic repayment schedule; however, this cannot account for unexpected changes in the financial situation of the borrower such as a mounting debt or job loss.

For example, if you have a repayment plan of $500 monthly and are struggling to meet repayments, lenders may accept a change of $300 monthly over a longer period of time. Whatever arrangement you are able to come to, always remember to consider that you will continue to pay interest over the full term period of the loan.


How Do I Get an Arrangement to Pay?

The only way to request an Arrangement to Pay is to go directly to your lender. You will need to explain your financial situation and explain why you are struggling to meet the original repayment plan.

Then, you will need to request an adjustment to the loan repayment plan. Lenders are usually happy to adjust the loan terms and do a longer loan period with smaller monthly payments, so long as by the end they are still receiving the same amount as originally planned. An Arrangement to Pay is typically more favorable for lenders as it saves them the time and effort of chasing clients for defaulted loans.


Is an Arrangement to Pay a Type of Contract?

An Arrangement to Pay is a legally binding contract between the lender and the borrower. This means that both parties are legally obliged to adhere to the agreed arrangement.


How Does an Arrangement to Pay Affect Credit?

The extent to which an Arrangement to Pay will affect your ability to get credit will depend largely on the lender and on the current state of your Credit Report. Lender attitude is paramount when determining how an Arrangement to Pay will affect your long-term credit. For example, some lenders will view this arrangement as an inability to pay debts on their due date. Others are more than happy to adjust the loan terms, believing that it is better to regularly be paid a slightly lower amount over a longer period of time. The latter lenders are less likely to penalise their clients for taking the bold step to ask for an adjustment of the loan terms.

Generally speaking, if you cannot afford your normal debt repayments, and have to ask your lender to freeze interest, cease additional charges or change the terms of the loan, it will normally harm your credit record. However, this does not mean that you will be unable to get credit from somewhere else.

Despite an Arrangement to Pay affecting your credit score and potentially your ability to borrow in the future, it is thought to be one of the least damaging markers to show up on your credit report. If anything, it shows that you have been able to accurately assess your financial situation, clearly communicate with your lender, and come to an agreement.


How Long Will an Arrangement to Pay Stay on Your Credit File?

Your Arrangement to Pay will be removed from your credit report after six years. However, even after this time, your credit score may still be low as a result of the arrangement. The Arrangement to Pay will restrict what you are able to borrow, making it more difficult to build credit in those six years. You can check your credit score here as a way of staying on top of your progress.


Is an Arrangement to Pay Better Than Defaulting Payment?

Yes. Although an Arrangement to Pay is technically a declaration that you are unable to meet monthly repayments, it is typically viewed less harshly than a defaulted payment. Even though it does lead to a marker on your Credit Report, an Arrangement to Pay shows that you have paid, just at a different amount to the original agreement. Defaulting, on the other hand, means that you have missed payment over a prolonged period of time.

Richard Allan

Richard Allan

Richard Allan is the founder of Capital Bean and a passionate writer about personal finance, budgeting and how to save money at home and work.

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