How Personal Loan Deferment Works & How It Can Help You

Tolu Gabriel
Tolu Gabriel July 17, 2021
Updated 2022/08/22 at 4:26 PM
How Personal Loan Deferment Works

You may have run into some financial troubles as a result of huge bills, and be currently overwhelmed with repaying your loans every month if you have a personal loan. There are options such as personal loan deferment that could be considered if your lender permits it.

Personal loan deferment gives you room to temporarily stop making payments till you are able to find your feet. There are limitations to put into consideration, so you should understand how personal loan deferment works to avoid finding yourself in deeper trouble.

What Is Personal Loan Deferment?

Personal loan deferment is a method of taking a temporary break from a loan repayment for a stipulated period of time. Deferring the payment of a loan means that you are delaying the payment of the loan without breaching the agreement on the loan. 

Personal loan deferment may be provided without an interest being accrued on the loan when you put a hold on the payments. But it is always important to talk with your lender first to explain your current situation. It could be that you had reduced work hours, your employment was terminated, or that you need expensive medical care.

Deferments are often reserved for borrowers who are having financial hardship. But not all lenders will be willing to provide the opportunity, but some definitely will. For them, considering profitability, it is often cheaper to pre-approve a borrower for a break in payment than to begin to collect proceedings after all.

 How Does Personal Deferment Work?

If you are permitted to defer a personal loan, you are allowed to put off the payment till an agreed date. For instance, you could be allowed to defer payment for a month. So, if you were originally supposed to pay off the loan in August 2021, you’d now have the space of delaying the payment till September 2021. And that if you do not have any more payments deferred.

If your lender agrees to your personal loan deferment, it is crucial that you find out the rules guiding the deferment program. You must understand the commencement and end of the deferment. The two dates are very important to you as you’ll be expected to make some payments regularly aside from the period of deferment. Oftentimes, lenders allow a one-month interval on loan deferment, but it may also be lengthier.

So, if for instance, your payment is due on 1st Oct 2021 and your loan deferment was approved a day after, you’ll still be required to make payment for October. And if it seems that you’re yet to overcome the financial challenge even after the expiry of the deferment period, you may still contact your lender for another deferment.

Lenders often have varying limits on the number of loan deferments a borrower can request, and some would rather make deferment provision on a case-by-case basis. So if your lender offered you a one-month deferment on your personal loan and you need more time after the expiration of the initial deferment, then you’ll need to contact them every month until you are fully balanced financially to make your full loan repayment.

Will I Be Charged Interest During a Deferment?

If you get approved for a loan deferment, there will be interests accrued on the loan. When you get the desired break, it is not going to come without a charge; you’ll be paying for it later as interest. You are likely to get a picture of the charges through your most recent statement.

You’ll get a breakdown of your payment into the interest portion and principal portion. The interest charge can be taken as the loan deferment charges. it will be attached to your loan and you’ll pay for it when you resume your loan payment.

Some lenders may not charge you interest in certain situations such as a pandemic, a natural disaster, or other widespread factors that affect very many people. But then, it depends on the individual lenders to determine what applies in a given situation.

 Can Deferring a Personal Loan Affect Your Credit?

If you get approved to defer a loan, then your credit shouldn’t be affected in any way. Your credit normally gets stronger or harm depending on what your lender reports your payment to the credit bureaus. They may report you as paid on time, paid late, or delinquent. And when you defer a payment, it will be reported as deferred, meaning they have consented to not receiving any payment from you over that stipulated period, so your credit will not be hurt in any way.

 Even so, you’ll need to keep in mind when your deferment ends. If you miss a payment after the deferment ends or forget to apply for another deferment, you’ll likely have to pay a late fee and will see a ding on your credit score. 

Personal Loan Deferment Alternatives

If your lender permits a personal loan deferment for you, it is very nice, but if not, you still have other options to leverage on.

1. You Can Refinance Your Loan

If you are rejected for a personal loan deferment, you can take your business elsewhere by refinancing your personal loan. You may even be provided reduced interest with it. But you may need to be sure that your credit is well established to get better terms.

2. You May Also Request A Modified Payment Plan From Your Lender

If your financial challenge is permanent and not just temporary then you may ask your lender to extend the term length of your loan. This modification will spread out your payment over a longer period of time, making your monthly payments smaller and easier to work with, but could be more expensive in the long run.

3. Talk To A Credit Counselor

If it turns out that your request for a personal loan deferment is declined, then consider talking to a credit counselor. The counselor should be able to put you through the best option to consider. If the loan deferment option isn’t best for you, they’d help with a better option. But it is important that you take caution here as there are several credit counseling or repair scams that have even been the target of legal action from the Consumer Financial Protection Bureau.

You can sideline fraudulent credit counselors by getting a referral through the National Foundation for Credit Counseling (NFCC). They are a nonprofit organization that offers financial assistance to people who are having a hard time with their finances. Their services are often very affordable and sometimes free.

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