Loan Deferment: What You Should Know

Financial hardships can happen. And when they do, you could find it difficult to make your monthly loan payments on time. Lenders may be willing to talk to you about a payment option called a loan deferment. But before you agree to defer a payment with a creditor, it’s important to understand the pros and cons of this payment arrangement.

What is loan deferment?

Loan deferment is an option designed for borrowers facing tough financial times. It allows you to temporarily lower or pause your loan payments, although this process may differ among lenders. Loan deferment aims to ease your financial burden, giving you the space and time to get your finances in order. Deferment doesn't waive any payments; it merely shifts them to a later date or reduces them for a while. It's important to remember, though, that interest might still build up during this period depending on the type of loan you have, which could increase the total amount you'll pay back over the life of the loan.

How loan deferment works

Eligibility criteria for deferment often depends on specific lender requirements, which may differ significantly. Loan deferment allows you to make smaller payments for a certain time, helping you avoid late fees and giving you a chance to stabilize your financial situation. Keep in mind, however, that the interest that accrues during this period may extend the time it takes to pay off your loan. For precomputed accounts, customers pay a fee to defer their payment.

Before you decide to go ahead with a deferment, it's wise to discuss details with your lender. You'll want to understand the ins and outs of your deferment options, including how long you can defer payments, any limits on the number of times you can defer, and how this decision might affect the terms of your loan overall. This way, you can make a well-informed decision that helps you navigate your financial challenges more effectively.

Things to consider before applying for loan deferment

If you decide to apply for a deferment, it’s wise to know the details and long-term consequences. You’ll want to carefully evaluate your situation and understand the implications. Taking the time to address these considerations will help you better determine whether loan deferment is the best course of action for your financial well-being.

Here’s a streamlined guide to help you make an informed decision:

Understand your financial needs

Think about why you're considering deferment. Is it due to a temporary setback or a longer-term financial challenge? This will help you gauge if deferment is the right approach or if you need to explore other options.

Assess the impact of interest accumulation

Realize that interest may still accrue during the deferment period, increasing the overall amount you owe. Consider whether this added cost will be manageable in the long term.

Grasp the terms and conditions

Each lender has specific policies for deferment, including how it affects interest, the length of your loan and who is eligible for one. Make sure you understand these policies fully to avoid unexpected consequences.

Consider the effect on your credit

Typically, a formal deferment won't hurt your credit score if arranged properly with your lender. However, it's crucial to confirm this to protect your credit health.

Explore other financial solutions

Look into alternatives that may be more suitable for your situation, such as refinancing for a better rate or revising your budget to prioritize loan payments.

Plan for the future

Think about your financial strategy after the deferment period ends. Planning ahead will help you resume payments more comfortably, especially if they increase due to accrued interest.

Seek professional advice

Consider consulting a financial advisor. Talking to a professional can provide clarity and help you navigate your decision with confidence.

Take the first step today

If you’re having a difficult time making your loan payment, talk to your lender before you get behind in payments. Working together, you may find a solution that keeps your financial hardship from having a negative impact on your financial well-being. If you’re a customer with OneMain, call 1-800-961-5577 to learn more about options for managing your account.

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This article was updated in 2020 and 2022. Kim Gallagher contributed.