What Is Personal Loan Deferment?

If you’re in a tight spot financially, you may be stressing out about trying to make your personal loan payments. Fortunately, there are options that could help. One you may want to consider is a personal loan deferment, which allows you to temporarily stop repaying your loan so you’re able to get your finances back in order. 

Read on to learn about personal loans with deferred payments and how they work.

What Is Personal Loan Deferment?

A personal loan deferment is a temporary break from making your loan payments that has been approved by your lender. You contact your lender and explain the reason for your financial hardship. If the lender approves it, they allow you to halt payments for a set period of time. The idea is that during the deferment period, you become financially secure enough to start loan payments on a regular schedule once again. 

Asking for a deferment is a much better option than failing to make loan payments. If you default on a personal loan, your credit score takes a big hit, making it more difficult to secure credit in the future. In addition, your lender might take you to court and try to garnish your wages. They may also sell your debt to a collections agency. 

Getting a Personal Loan Deferral

To get a deferment on your personal loan, you need to speak with your lender. Explain your circumstances and the reasons for your financial hardship. For instance, perhaps your hours have been cut back at work, which has reduced your pay. 

Your lender isn’t required to give you a deferment. However, it may be likely  if you’re going through financial hardship. Letting you temporarily defer your personal loan payment means they don’t have to take you to court or send your case to collections, which is often expensive for them. They may see a temporary halt to your loan payments as a better option for them. 

Reasons You May Defer a Personal Loan

Before providing deferment options, lenders typically require you to demonstrate that you’re experiencing financial hardship. Below are some common situations where deferment may be a viable choice.

• Job loss: Unemployment may strain finances, making it hard to meet monthly loan obligations.

• Medical emergencies: High health care costs might leave you with little room for loan payments.

• Natural disasters: Recovering from events such as hurricanes or fires may prioritize other expenses.

• Family emergencies: Caring for a loved one or dealing with unexpected family costs may impact your budget.

• Educational pursuits: If you return to school, lenders might provide deferment options during your studies.

• Military service: Active-duty service members may qualify for deferment under specific protections.

• Economic hardship: Lenders might provide relief during periods of financial instability.

• Temporary cash flow issues: Unexpected expenses may necessitate a temporary pause in payments.

How Long Can You Defer Your Personal Loan Payments?

You need to work out the length of your deferment with your lender. Some lenders approve deferments for a month at a time, but you may be able to get a longer deferment approved. It’s important to know exactly when your deferment starts and ends so you know when you’re expected to start making payments again. The repayment period for your loan is typically extended for as long as your payments were deferred. 

Will Deferring a Personal Loan Hurt Your Credit Score?

Your credit is generally not negatively impacted if your lender has approved a personal loan deferment. In fact, deferring a personal loan may help protect your credit score. Lenders report on-time payments and late payments to the major credit reporting bureaus. On-time payments help your credit history, while late payments are detrimental. If you and your lender have agreed to a deferment, your payments are reported as deferred as opposed to late.

You may want to check your credit score to make sure that the deferred payments are being recorded correctly. You’re entitled to request your complimentary credit report once per year from each of the credit reporting bureaus: TransUnion, Experian, and Equifax.

Will a Deferred Personal Loan Accrue Interest?

While it’s ultimately up to your lender, interest typically accrues on a personal loan that’s in deferment. To get a sense of how much interest you’re likely to pay, take a look at the interest amount on your most recent loan statement. That amount is a reasonable estimate of what you’re likely to pay for every month you defer your loan. The interest is added to your loan principal, and you start paying it back when your deferment ends. 

Pros and Cons of Personal Loan Deferment

As you’re deciding whether or not to defer your loan, it’s important to weigh the advantages and disadvantages. 

Alternatives to Deferring a Personal Loan

In addition to deferment, there are other options you may want to consider.

Loan Modification

If your lender won’t give you a deferment, they might be willing to give you a loan modification to make payments more manageable. For example, they might be willing to extend the term of your loan. This stretches out the time you have to make your payments, and it may make your monthly payments smaller. However, this also means you pay interest for longer, which is likely to increase the amount you ultimately pay. 

Refinancing

You could also refinance your loan with another lender. When you refinance, you take out a new loan with better terms to pay off your old loan. If your credit is good, you might even be able to get a new loan with a lower interest rate. Lowering your interest rate or extending the length of the loan are ways to lower your monthly payment and make it easier for you to manage. 

The Takeaway

If you’re in danger of falling behind on your personal loan payments, reach out to your lender and tell them about your hardship. They may provide you with personal loan deferment options to temporarily put your loan payments on pause to help you get back on your financial feet. Or they might have other options that make your monthly loan payments more manageable. 

If your lender is unable to provide you with a solution, you may want to consider looking for another lender who could refinance your loan to a new one with better terms and possibly even a lower rate. Being proactive is far better than missing payments or defaulting on your loan. 

If you’re considering a personal loan refinance, Lantern by SoFi can help. In our online marketplace, you can explore current personal loan interest rates and terms from multiple lenders to find the loan best suited to your needs. 

Find and compare personal loan options with Lantern.