Unemployment Insurance. Paycheck Protection. Stimulus. Borrower’s Assistance. Deferment.
Economic disruption not only introduces new stress, but financial hardship can also add new language to people’s everyday vocabulary. If you are facing unemployment or struggling to make your monthly payments on a personal loan, car loan, student loan, credit cards or mortgage, many lenders may be willing to talk to you about a payment option called a deferment. Take a few minutes to understand exactly what a deferment could mean, pro and con, right now and for your future.
What is a deferment?
A deferment is an alternative for loan repayment during times of hardship, designed to give you room to breathe – and a little extra time to pay. Once you apply for, and your lender or creditor agrees to, a loan deferment, you can temporarily stop making payments, without fear of penalties like late fees or negative reports to the credit bureaus that calculate your credit rating.
Deferment vs. forbearance
Deferments and forbearances both postpone payments that borrowers can’t make because of unusual circumstances or economic hardship. Deferment is almost always the smarter option. Depending on your type of loan and lender, interest may not accrue during deferment. You should consult your lender to discuss your options if you are considering a deferment or forbearance.
Deferments and forbearances are typically applied to student loans and mortgages (car loans use the term “loan extension”). Lately, however, many lenders are offering similar options for other types of loans, including deferred payments, reduced payments and waived late fees, to help people navigate the current economy.
But one thing remains the same: Whether you apply for a deferment, reduced payment, loan extension, postponement or forbearance, don't skip payments until you have confirmation that your application has been approved and that your creditor or loan servicer has excused you from making payments. Any late or missed payments before your loan officially goes into deferral will be reported to credit bureaus and could negatively impact your score.
Discussing deferment? Be sure to ask questions.
Before you make a decision, here are factors to consider. Your lender will welcome your questions. After all, the last thing anyone wants is a surprise at the end of the deferment.
How will this affect my credit score? How long will the deferment period last? How will deferment change the terms and length of the loan? Will deferment accrue extra interest? Will the date and amount of my monthly payment change?
How to prioritize where your money should go.
Everyone’s financial situation is different, depending on employment status, outstanding debt, children, health and more. Whether or not you get loan assistance, you will want to create a budget. You’ll have to decide which expenses are critical (food and shelter, for example) and which extras you could eliminate, even temporarily. Your goal is to cover bills and not miss payments. Check out these free, easy budget tools from OneMain, including how to create a budget for the first time, a micro-course on budgeting and a handy budget calculator.
Take the first step today.
If you need borrower’s assistance, first do your research to make sure you understand your options. Then call your lender to start the conversation, asking questions, taking notes and weighing the different solutions. Keep making on-time payments until your deferment or other option is approved. If you’re a customer with OneMain, learn more about options for managing your account at omf.com/manageyouraccount.