What You Should Know About Deferments

Financial hardships can happen. And when they do, you could find it difficult to make your monthly loan payments on time. Lenders may be willing to talk to you about a payment option called a loan deferment. But before you agree to defer a payment with a creditor, it’s important to understand the pros and cons of this payment arrangement.

What is a deferment on a personal loan?

A loan deferment allows you to make a smaller loan payment or postpone the entire payment during times of economic hardship. It is designed to give you room to breathe and a little extra time to get back on track. A deferment does not eliminate a payment that is due, but simply delays or decreases it for a period of time. And during a deferment, interest continues to accrue, which can add to the total amount you will pay over the life of the loan.

How does loan deferment work?

Every lender has their own terms for loan deferments. The deferment would allow you to pay just a portion of your regularly scheduled payment, without late fees. This arrangement could be helpful in giving you time to get things back on track if you’re going through a tough time financially. Keep in mind that interest would continue to accrue, and the maturity date may be extended.

With other types of loans like student loans, a loan deferment may allow you to temporarily stop making payments until an agreed-upon date. But it’s important that you do not skip payments until you have confirmation that your application for a loan deferment has been approved by your lender. Otherwise, any late or missed payments before your loan officially goes into deferral might be reported to credit bureaus and could negatively impact your score.

You’ll also want to check with your lender about any limitations on the total time your loan can be in deferment, the number of deferments you can obtain in a year and the maximum number of deferments you can have over the life of your loan.

What happens when you defer a payment?

It’s important to find out how a loan deferment will impact your loan and your finances. Get answers to questions like: Is there a fee for the deferment? How will this affect my credit score? How long will the deferment period last? How will deferment change the terms and length of my loan? Will the deferment accrue extra interest? Will the date and amount of my monthly payment change?

Reading the terms and conditions carefully before agreeing to a loan deferment can help you determine how it might affect you both now and in the future.

Take the first step today

If you’re having a difficult time making your loan payment, talk to your lender before you get behind in payments. Working together, you may find a solution that keeps your financial hardship from having a negative impact your account.

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