“Disclaimer: An article's discussion on a specific product is for general educational purposes only and does not imply that Citi offers that product. Citi may have different product offerings and/or eligibility criteria than those mentioned in this article.”
Key insights:
- Loan deferment temporarily pauses monthly loan payments, but the loan is not forgiven and interest may still accrue
- Deferment may help you avoid missing payments during financial hardship, but approval depends on your lender, loan type and circumstances
- Alternatives to loan deferment include loan modification, debt consolidation and credit counseling
When you sign a loan agreement, you’re expected to pay back the money that was lent within a certain amount of time. However, life can occasionally get in the way.
If you find yourself struggling to keep up with your loan payments, you may want to look into loan deferment. Loan deferment can temporarily give you a break from paying back your loan for a set period of time.
Let’s look at how loan deferment works, potential credit impacts and how to decide if deferment is right for you.
How does loan deferment work?
A loan deferment puts a temporary stop on your monthly loan payments. That means that for a period anywhere from a month to a few years, you won’t receive any penalties for not making your payments.
Deferment doesn’t mean the loan amount is forgiven. You’ll still accrue interest during the deferment period, and you’ll still have to begin repaying the loan plus interest when the deferment period ends.
The ability to defer your loan and the length of the deferment period depend on the type of loan and your lender’s policies. Deferment is not guaranteed. Deferments are typically only granted under specific circumstances, such as medical emergencies and unemployment.
Loan deferment vs. forbearance
Depending on the type of loan, you may see a pause in payments referred to as a “deferment” or a “forbearance.” These terms are often used interchangeably. For example, a pause in credit card or mortgage payments is referred to as “forbearance,” while a pause in personal loan payments is a “deferment.”
However, there are situations in which deferment and forbearance have significant difference, such as with student loans.
Student loan deferment vs. forbearance
With student loans, there is a clear distinction between deferment and forbearance.
| Student Loan Deferment | Student Loan Forbearance | |
|---|---|---|
| Eligibility | Available for those with financial hardship, medical issues, military obligations or who are currently students, among others | Available for those with financial hardship or medical issues, and those in certain health care training programs or public service professions, among others |
| Interest | Interest doesn’t accrue on subsidized federal loans, but it does accrue on private loans, and your monthly payment may be higher when payments resume | Interest accrues on all loans, but your monthly payment stays the same after the forbearance period ends |
| Length | Can last up to 3 years or more | Generally granted in 12-month cycles |
| Availability | At the lender’s discretion | Lenders are required to offer mandatory forbearance depending on your circumstances |
Does loan deferment impact your credit?
Generally, a loan deferment is reflected on your credit report. But even though you aren’t making payments, it won’t directly affect your creditworthiness. However, if you apply for a new credit card, loan or other type of credit while in deferment, lenders may use the deferment as part of their decision whether or not to approve your application.
To protect your credit score further, always confirm that your loan deferment or forbearance has been approved and is active before you stop making payments on your loan.
Alternatives to loan deferment
If loan deferment isn’t an option, you might look into 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. Your lender has the final say over any changes.
Debt consolidation
Some lenders may offer you the option to consolidate your debt into a single new loan. This loan may come with a lower interest rate or extend your loan’s repayment term so you have more time to pay off your debt. However, more favorable terms are not guaranteed.
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.
Deciding whether loan deferment is right for you
Loan deferment can provide payment relief when you’re experiencing financial hardship. It may help you 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.
This article is for general educational purposes only and is not intended to imply that Citi offers the product or product features discussed herein. Citi may have different product offerings and/or eligibility criteria than those mentioned in this article. This article is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. For advice about your specific circumstances, you should consult a qualified professional.
