What Is a Deferred Loan Payment?
A deferred loan payment is what happens if the borrower gets permission from the lender to skip making loan payments for a specific period or a certain number of installments. Those payments still need to be made—in one form or another—but during the deferment period, you don’t need to make your installment payments according to the repayment schedule.
For installment loans, the deferment period may take place at the beginning of the repayment period, especially if it’s part of a special promotional deal (such as “No payments for six months”), or the lender may offer it later because the borrower is experiencing financial hardships.
What Happens When a Loan Payment Is Deferred?
The details are determined by your loan terms and conditions, but generally, deferred payments have these characteristics in common:
- You still owe the missed payments. This might take the form of higher monthly payments once you resume payments, or it may increase the loan term by tacking the payments onto the end of the original term.
- Interest may still accrue. It depends on your lender and loan terms, but if you’re still charged interest during the deferment period, you’ll end up paying more in the long run.
- All the loan terms you agreed to still apply. It would be a mistake to read more into a deferment than precisely what it means. You still have the loan, and it’s still very active, despite the temporary repayment pause.
- You may have to request a deferment. Unless it’s part of a promotional benefit baked into the loan terms (in which case, the deferment period will almost surely take place at the beginning of the loan), you’ll probably need to initiate the process by reaching out to your lender.
What Are the Advantages and Disadvantages of Deferred Payments?
Is a deferment the right choice for you? The pros and cons can help you decide.
Advantages of a Loan Deferment
- Immediate relief. Financial hardship can hit suddenly, and the ability to skip a loan payment for a month or two can help immeasurably when you’re struggling.
- Preserved credit. There’s no credit hit for a deferment like there would be if you simply stopped making your payments. Going through the proper channels leaves your credit score intact.
- Breathing room. Even if things haven’t spiraled out of control, a little flexibility can make a big difference, helping you get caught up so that you’re in a better position to make full payments and take care of the rest of your bills.
Disadvantages of a Loan Deferment
- Increased total payments. It depends on your terms, but you’ll likely end up paying more overall once the impact from the deferment is factored in.
- Longer loan term. This one can also vary based on how your lender handles deferments. If the missed payments are added on to the end of the term, you’ll find yourself in the repayment period longer than you originally anticipated.
- Variable conditions. Deferments are handled differently by each lender. As such, the temporary relief might result in more difficult repayment terms afterward. You’ll need to carefully read the fine print.
Are Deferred Payments a Good Idea?
If you can’t make the payments according to the loan agreement, seeking some sort of loan modification—such as deferment—is probably a wise decision. It might feel intimidating to reach out and ask for help, but falling behind on payments without communication with your lender can have serious financial consequences. Will they be willing to work with you? You’ll only know if you ask.
Just bear in mind that deferment does not eliminate your responsibility to repay the loan. So is it a good idea? Well, it can be extremely helpful if you’re experiencing temporary financial hardship, but it’s not a long-term solution for money struggles that will continue to make repayment difficult.
Depending on the type of loan you’re struggling to repay, forbearance may be a better option than deferment. This is a question your lender should be able to help you answer.
Apply for a Loan with Power Finance Texas
It’s good to be educated about questions like what a deferred loan payment is before you commit to a loan. You’ll be bound by the terms you agree to, so going in with your eyes wide open is smart.
Our representatives are ready to answer any questions for Texas residents seeking an installment loan. We offer funds as soon as the same day to eligible borrowers.
Submit your loan application today.