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Key insights:
The terms loan deferment and forbearance often come up when borrowers need temporary relief from loan payments. These options can apply to several types of loans, including mortgages and personal loans.
Both deferment and forbearance involve a temporary stop or reduction in loan payments. However, the way they work and how they affect interest can differ. While these terms may have specific definitions for student loans, lenders may sometimes use them interchangeably for personal loans and mortgages.
In general, deferment is a pause in loan payments, while forbearance may involve paused or reduced payments. Another key difference is that interest may pause during deferment for some loans, while it usually continues to accrue during forbearance.
Let’s take a closer look at loan deferment vs. forbearance and how they compare.
Loan deferment is a temporary pause in loan payments that may be available during certain life events. Common qualifying situations include financial hardship, military service or unemployment.
Depending on the loan type and lender, interest may or may not continue to accrue during deferment.
Because payments are paused during the deferment period, borrowers may have time to stabilize their finances before resuming regular payments.
Deferment can provide meaningful short-term relief, but it also comes with limitations.
Loan forbearance is another form of temporary payment relief. Instead of fully stopping payments in all cases, it may allow borrowers to pause payments or reduce their monthly payment amount for a limited time.
During most forbearance arrangements, interest continues to accrue on the loan balance.
Borrowers may request forbearance when facing financial challenges such as job loss, unexpected medical expenses or other temporary setbacks. Approval and terms depend on the lender.
For some loans, such as mortgages, forbearance may also involve reduced payments or an extension of the loan term.
Like deferment, forbearance offers pros and cons.
Understanding the differences between loan deferment vs. forbearance can help you evaluate which option may better fit your situation.
Some loans do not accrue interest during deferment. In contrast, interest generally continues to accrue during forbearance.
Forbearance is typically limited to shorter periods, often up to 12 months. Deferment may last longer depending on the loan and lender policies.
Interest may pause during deferment for certain loans, it may. During forbearance, unpaid interest may be added to the principal balance.
You may not always be able to choose between loan deferment and forbearance, since available hardship options depend on your lender and loan type.
However, when both are available, borrowers may favor deferment because interest may pause on certain loans.
When deciding which option may work best, consider researching:
Your lender can help explain the details and guide you through the available options.
If deferment or forbearance is not available, other alternatives may help manage loan payments.
Depending on your loan type, refinancing or consolidating debt could reduce your monthly payments. Borrowers with mortgages or unsecured debts such as personal loans or credit card balances may explore these options based on their financial circumstances.
You may also review your budget to identify opportunities to adjust spending and help maintain on-time payments.
Citi offers personal loans to both existing and new Citi customers who meet eligibility requirements, including an established credit and income history and other factors determined by Citi. If you think you could benefit from a Citi Personal Loan, apply online today.
This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.
