Answer:
If they took out the loan prior to entering into the service, they are entitled to the 6% rate effective the date they reported to active duty. If they took out the loan after they were already on active duty they are not entitled to any rate reduction, even if being deployed overseas or to a combat zone. If they took out the loan prior to entering active duty you could refuse to grant the 6% rate if the borrower's financial circumstances were not adversely impacted from entering the service, but the burden of proof would be on you to prove no adverse impact. That combined with the potential reputation risk of a headline that says "ABC Bank Refuses Relief to Sailor", leads most banks to just go ahead and give the relief if the loan was taken out before entering into active duty.
First published on BankersOnline.com 7/03/06
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