Personal Loan Deferment vs Forbearance

Q: Is personal loan deferment or forbearance better?

Deciding whether to pursue loan deferment or forbearance depends on your specific circumstances. One thing to keep in mind: With forbearance, you are typically responsible for the interest that accrues on the loan. With deferment, you may be able to get the interest waived.

Q: How does deferring a personal loan affect your credit?

Your credit should not be impacted during loan deferment. Your lender will report the loan as being in deferment, rather than the loan payments being late or missed. However, after deferment ends, any late or missed payments you make will be reported to the credit agencies and your credit score could suffer.

Q: How does loan forbearance affect your credit?

Your lender will report the loan to the credit bureaus as being in forbearance. Your payments will not be reported as missed or late during this time.

Loan Deferment vs Forbearance: The Complete Guide

Jason SteeleUpdated February 27, 2023

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

If money is tight and you’re struggling to make your monthly personal loan payments, there are two methods that might help get you through this tough time. Loan deferment and loan forbearance are ways to temporarily pause payments and allow you some time to catch up financially, so you don’t miss payments and face potential consequences.Although they are similar, there are differences in loan forbearance vs. loan deferment. Read on to find out how each method works to decide if one might be right for you.

What Is Loan Deferment?

First, let’s talk about the loan deferment vs. forbearance definition. Loan deferment allows you to pause loan payments or make smaller payments for a set period of time. Deferment might be an option to consider if you’re worried that, otherwise, you may have to default on a personal loan.To defer a loan, you need approval from the lender. But first, you’ll have to prove that you’ve experienced a financial hardship, like a job loss or major unexpected expense. However, not all lenders allow personal loan deferment. If they do permit it, lenders may have specific rules on how much time your loan can be in deferment, the number of deferments you can obtain in a year, and the number of deferments you can have over the course of your loan. Something important to keep in mind is what happens to the interest on your loan during deferment. One possibility is that the interest may continue to accrue during deferment and be added to the principal balance of a personal loan. The lower the interest rate you have, the less there is to accrue. This is why comparing personal loan rates whenever you’re shopping for a loan is smart. The other possibility is that the lender could offer you a deferment that waives the interest so that it doesn’t accrue in the deferment period. Talk to the lender about this option and see what you can work out.Fortunately, your credit should not be impacted during loan deferment. Your lender will report the loan as being in deferment, rather than being late or missed. But after the deferment ends, any missed payments will be reported to the credit agencies, and your credit score could suffer.

Loan Deferment Pros

There may be several advantages to loan deferment, such as:

You may be able to skip loan payments for a set period of time.
You may avoid paying late fees.
Your credit shouldn’t be impacted during deferment.

Loan Deferment Cons

However, you should also weigh the potential drawbacks to loan deferment, including:

Interest may continue to accrue during deferment.
The loan term will likely be extended the same number of months your loan was in deferment.
If you miss a payment after deferment ends, your credit score could be impacted.

What Is Loan Forbearance?

With loan forbearance vs. deferment, the lender agrees to lower or temporarily suspend your loan repayment. A forbearance is generally for the short term, and it’s granted if you’re having financial hardship but haven't yet fallen behind on loan repayments. After the forbearance period ends, you’ll resume your payments. You’re still responsible for paying interest during a forbearance period. If you don’t, the interest will be added to your outstanding loan balance once your forbearance period ends. That means your monthly loan payments may be higher.Each lender has their own criteria for deciding whether to grant a forbearance. However, like a loan deferment, you’ll likely need to show proof of a temporary financial hardship, like a job loss or medical emergency. The lender will typically report the loan as being in forbearance to the credit bureaus.

Loan Forbearance Pros

There are some possible benefits to loan forbearance, including:

It can help during times of financial hardship.
You may avoid paying late fees.
It may be beneficial in short-term situations.

Loan Forbearance Cons

Before taking a loan forbearance, you should consider the following potential disadvantages:

You’ll have to make up for the payments that were paused during the forbearance period.
Your monthly payments after forbearance may be higher.
You’re still responsible for interest during the forbearance period.

Personal Loan Deferment vs Forbearance

Personal loan forbearance vs. deferment share many similarities, but they are slightly different.

Personal Loan Deferment	Forbearance
Allows you to pause or lower your monthly loan payments temporarily.	Allows you to pause or lower your monthly loan payments temporarily.
Deferment may be for a longer period of time.	Forbearance is usually for short-term situations.
You may or may not be responsible for the interest that accrues.	You are generally responsible for the interest that accrues.
The deferred payments are added to the end of your loan term.	Your payments will be recalculated, and they may be higher.

What Happens to Your Collateral When You Put Your Personal Loan on Forbearance vs Deferment?

Personal loans are either secured, meaning they require collateral, or unsecured with no collateral, which is sometimes called a no collateral personal loan. If you have a secured loan, your collateral for a personal loan will not be taken while your loan is in deferment or forbearance. However, if you don’t make your payments once the forbearance or deferment period ends, you may risk losing your collateral.

The Takeaway

Loan deferment or forbearance could help if you’re having trouble making your personal loan payments. Temporarily pausing or lowering your payments may give you time to get back on your feet. Just be sure to carefully consider the pros and cons of each option to determine which one might be best for you.If neither method feels like the right solution, there are other options you could pursue. For instance, you could ask your lender about a modified payment plan, or look into personal loan refinancing. If you decide to take out a new personal loan, Lantern can help you explore the options. In our online marketplace, you can get offers from multiple lenders at once to find the rates and terms that suit your needs. It’s quick, easy, and convenient.

Frequently Asked Questions

Is personal loan deferment or forbearance better?

How does deferring a personal loan affect your credit?

How does loan forbearance affect your credit?

Photo credit: iStock/pixdeluxe

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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