How does loan deferment work?
A loan deferment puts a temporary stop on your loan payments. However, this doesn’t mean the loan amount is forgiven. A borrower will still have to repay the loan and interest when the deferment period ends.
Lenders may have certain requirements in place to grant loan deferment, such as financial hardship. You generally need to make your payments until deferment is granted. Once started, a deferment period may last anywhere from 1 month up to multiple years, depending on your lender, loan type and circumstances.
Interest typically continues to accrue while you’re on loan deferment. You generally must make up those skipped payments later, so it may extend your loan term.
Loan deferment can look different depending on the type of installment loan you have:
- Mortgages: Lenders typically call this “forbearance,” rather than deferment. You may need to provide evidence of financial hardship to get this type of temporary payment pause. You may have the option to repay skipped payments as a lump sum once that period ends, adjust your regular payments to pay that sum off over time or extend your mortgage term.
- Personal loans: Typically, this type of temporary payment pause is only granted for financial hardships.
Loan deferment is typically something you need to request. Approval often rests on whether or not you meet the lender’s specific deferral criteria.
Loan deferment vs. forbearance
Some lenders use "deferment" and "forbearance" interchangeably. There are some similarities:
- Both deferment and forbearance can result in paused payments.
- Interest generally accrues during both loan deferment and forbearance.
- You may need to show evidence of financial hardship to qualify for deferment or forbearance.
However, there may be differences between these options that may be worth considering.
- Deferment typically only refers to a payment pause. Forbearance may also include temporarily lower payments or reduced interest rates.
- Deferment may extend your loan term, tacking skipped payments on at the end. With forbearance, you typically need to make up skipped payments by making a lump-sum payment. You may also have the option to do this via installments that are added to your usual monthly payment.
- Forbearance may be more limited in how long it can apply, compared to deferment.
Does loan deferment impact your credit?
In general, loan deferment shouldn’t hurt your credit since you aren’t missing payments. However, your lender may report that your loan is in deferment to the credit bureaus. If you apply for credit while in deferment, lenders may see that information, which could impact their decision to approve your application.
Pros and cons of loan deferment
Loan deferment can be a useful tool, but there may be drawbacks as well.
Pros
- Deferment can temporarily pause loan payments
- Typically, deferment won’t impact your credit
- May help borrowers avoid loan default
Cons
- Interest can accrue during loan deferment
- Deferment can extend your loan term
- You typically need to meet certain requirements to qualify
Alternatives to loan deferment
If loan deferment isn’t an option, or you want to avoid the potential downsides associated with deferment, you may consider alternatives such as:
- Loan modification: Some lenders may allow you to make a permanent change to the terms of your loan, such as adjusting the payment amount or the number of remaining payments. This would be at your lender’s discretion.
- Debt consolidation: If you qualify, you may be able to combine your debts into a consolidation loan. This would mean a new set of loan terms, which could help you simplify your debt payments and potentially make your payments or APR more affordable.
- Credit counseling: When debt becomes too much to handle, it can make sense to call in professional help. Qualified credit counselors can walk you through your options and help you navigate your finances, either at a low cost or for free.
Deciding whether loan deferment is right for you
Loan deferment can provide the payment relief you need when experiencing financial hardship. It may also help preserve your credit, avoid missed loan payments and prevent late fees.
For a personal loan, deferment may be available depending on the lender. Talking to your lender or loan servicer can help you understand the potential ramifications of loan deferment as well as other avenues that may make sense for you.
Citi offers personal loans to both existing Citi customers and new Citi customers that meet specific eligibility criteria, including an established credit and income history along with additional 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.
