There may come a time when you need to take a break from making payments on your personal loan. When this happens, you can apply for deferment. Deferment is a process that allows you to stop making payments on your loan for a specific amount of time. Keep reading to learn more about how personal loan deferment works!
What is a personal loan deferment?
A personal loan deferment is a postponement of payments on a personal loan. During the deferment period, no interest will accrue on the outstanding balance of the loan term. This can be an attractive option for borrowers struggling to make their monthly payments but still want to keep the debt “in play” so they can resume making payments and eventually pay off the loan.
Personal loans in deferment are not uncommon. Many lenders offer this option to their borrowers to help them through tough financial times. If you’re considering a personal loan deferment, be sure to speak with your lender or loan servicer about the details and requirements. Each lender has its process and guidelines for deferring a personal loan.
In most cases, to qualify for a personal loan deferment, you must meet specific criteria. For example, you may need to be experiencing financial hardship, have lost your job, or be enrolled in an approved education program. Your lender will also likely require that you continue making payments on the loan’s interest during the deferment period.
How do I get a personal loan deferment?
If you’re having difficulty making your monthly payment, contact your lender as soon as possible and ask about your options for obtaining a personal loan deferment. Each lender has its specific process and criteria for granting deferred payments, so it’s essential to provide all relevant information and documentation to your lender on time.
If you’re approved for a personal loan deferment, you may be required to make interest-only payments or pay a reduced amount each month. Be sure to ask all the terms and conditions of your loan deferment before agreeing to anything.
How does it work?
If your request for a personal loan deferment is approved, you will be allowed to stop making payments on your loan for a specific period. During this time, the interest on your loan will continue to accumulate, but you will not be responsible for making any payments. However, you should be aware that most lenders charge a fee for deferring payments.
When you’re ready to start making payments again, you will need to contact your lender and arrange a new payment schedule. Depending on the terms of your deferment, you may be required to make a lump-sum payment or larger monthly payments.
It’s important to remember that a personal loan deferment is not a long-term solution for financial difficulties. If you’re having difficulty making your payments, it’s essential to explore all of your options and find a solution that works for you.
Does personal loan deferment hurt my credit score?
One of the common misconceptions is that using deferment or forbearance will hurt your credit score. It will not. Student loan deferment and forbearance will be noted in your credit reports, and neither will hurt your overall credit score. However, your credit score will be affected if you are late or miss a payment before deferment or forbearance approval.
Lenders add a note to accounts in deferment when reporting their status to the three major credit bureaus. However, the effect on credit scores is typically minimal and temporary.
How long can I defer my loans?
The length of time you may be eligible to defer your loan will depend on the terms of your promissory note. The most common deferment period is six months. For federal student loans, you can delay for up to three years if you are unemployed or underemployed, experiencing economic hardship, or returning to school at least half the time.
If you have private student loans, contact your lender directly to discuss your deferment options. Some lenders may offer forbearance instead of deferment. Others may allow you to postpone payments for a shorter period.
How to apply for a personal loan deferment?
If you’re struggling to make your personal loan payments, you might be able to defer them. This means that you can put off making payments for some time. Here’s how it works.
First, you’ll need to contact your lender and explain your financial situation. Then, you’ll need to provide documentation of your income and expenses. Once your lender approves your request, they will send you a deferment form to sign.
Once the form is signed, you won’t have to make any payments for the duration of the deferment period. However, interest will continue to accrue on your loan during this time. That means that when the deferment period ends, you’ll owe more money than you did before.
You should also be aware that most lenders charge a fee for deferring payments. So, you’ll need to weigh the cost of the expense against the benefit of not making payments.
The benefits of personal loan deferment
You can postpone making payments on your loan. This allows you to focus on more important things, like finding a job. When you defer your loans, you are given a grace period of six months. During this time, you will not have to make any payments on your loan. You will also be able to continue receiving interest subsidies from the government.
It would help if you kept in mind a few things regarding personal loan deferment. First, you need to know that not all lenders offer this service. Second, if you decide to defer your loans, there is usually a fee associated with doing so. Finally, when it comes time for you to start making payments again, they will likely be
The risks of personal loan deferment
There are some risks associated with personal loan deferment. If you can’t make your payments, the lender can declare the entire loan amount in default. This will damage your credit score and may even lead to a lawsuit.
Remember that your balance will typically keep accruing interest while in deferment, so it doesn’t come for free. Make sure you understand your lender’s exact rules for deferment and what it may cost you in the long run. So, if you have a $15,000 loan with a six-month deferment period, you will end up owing an additional $750 in interest.
Alternatives to personal loan deferment
They may be available to you, depending on your lender. In addition, some lenders may offer forbearance, which is similar to deferment in that it allows you to stop making payments or reduce your monthly income temporarily.
Financial institutions, like banks and mortgage lenders, may still offer resources to those affected by COVID-19. If you need relief, contact your insurer, credit card company, mortgage lender, or bank and see if they can offer help.
If you decide that personal loan deferment is proper for you, the process is generally pretty straightforward. Most lenders will allow you to submit a request for deferment online or by mail. You’ll need to provide documentation supporting the reason for your request, such as a letter from your employer if you’re seeking unemployment deferment. Once your request is approved, your loan payments will be deferred for the agreed-upon period.
Personal loan deferment can provide some much-needed relief if you’re facing financial hardship. Just be sure to fully understand the terms and conditions of your deferment agreement before signing on the dotted line. And remember, interest will continue to accrue during the deferment period, so you’ll ultimately end up paying more in the long run.
Personal loan deferment can be a helpful tool if you’re struggling to make your monthly payments. But it’s essential to weigh the pros and cons before deciding whether or not this option is right for you. For more information, talk to your lender about the different alternatives available to you.
If you have any questions about personal loan deferment or want help exploring your options, please don’t hesitate to reach out to one of our experts. EdFed offers Personal Loan programs that will give more information on personal loan deferment.