What is personal loan deferment?

If you’re having a hard time making your personal loan payments, deferment may be an option to explore. (iStock)

Personal loans can be a good option if you need quick cash or if you need to cover a sudden or unexpected expense.

Unfortunately, while shopping around for your loan can help reduce its costs (and your interest rate), you could still find yourself in hard financial times before the loan is repaid. If that happens, making your payments might become difficult. Multi-lender marketplace Credible is a great place to start if you're considering opening a new loan or getting a refinance loan.

If you find yourself in this situation, you may want to explore deferment — an option often available for borrowers in financial hardship. Are you having difficulty staying current on your personal loan? Here’s what you need to know about deferment and other alternatives you may have.

What is a personal loan deferment?

Deferment lets you pause your loan payments temporarily, typically due to financial hardship or a temporary loss of income.

Here’s how Rich Tambor, chief risk officer at OneMain Financial, explained it: “The lender is allowing the customer to put off partial repayment of their loan to some time in the future. The customer agrees that the amounts due during the period of the deferment will be repaid — usually at the end of the term of the loan.”

Deferment periods vary, but they usually last for at least a few months. You won’t have to make payments during that time frame, and the missed payments will be repaid at the end of the loan via additional monthly payments. It’s essentially a way of pausing payments and extending your loan term simultaneously.

Credible can always help compare personal loan companies by rates, loan terms, and more. Get started on your search today.


Will I always be able to defer my loan payments?

Deferment options vary by lender, so it really depends on who your lender is and what your financial situation looks like. (Again, you can visit Credible to compare rates and lenders — whether you're considering opening a new personal loan or refinancing an existing one).

According to Tambor, some lenders were offering three-month deferments earlier this year to help borrowers who found themselves in hard times. Some even let those borrowers extend the deferment for another three months if the situation did not approve.

If your lender does offer a deferment option, you will likely need to prove your financial hardship in some way, using paychecks, bank account statements, a pink slip, or other documentation. Keep in mind that your balance will typically keep accruing interest while in deferment, so it doesn’t come for free. Make sure you understand your lender’s exact rules for deferment and what it may cost you in the long run.


Does personal loan deferment hurt my credit score?

According to Leslie Tayne, a debt relief attorney with the Tayne Law Group, lenders do add a note to accounts in deferment when reporting their status to credit bureaus.

“While the note added to credit reports doesn’t directly affect credit scores, the fact that it’s there may impact your ability to borrow further and have other implications,” Tayne said.

Put simply, it means you might have a hard time taking out other financial products, and it could show up on your report if it’s pulled by a potential landlord or employer.

What will hurt your credit score, though, is if you wait too long to join your deferment plan. Make sure you contact your lender and ask about deferment before missing a payment. Late and overdue payments can hurt your score considerably and impact your future financial options.


What are my other options?

Deferments are ideal if you’re facing short-term difficulties — like a loss of working hours or a furlough.

“The deferment allows the consumer a little breathing room when they believe that they’ll be back on track and able to resume regular payments in a month or two,” Tambor said.

If your lender doesn’t offer deferment or you think your financial situation may be longer, you have other options, too. The first would be a loan modification.

“Usually, these include a few months of reduced payments along with an interest rate reduction to help a customer through a temporary hardship that is expected to exceed a month or two,” Tambor said.

Loan modifications can also allow you to extend your loan term, which would lower your monthly payment and make it more affordable. Again, you may need to provide some documented proof.

Another option would be to refinance your loan. Refinancing lets you replace your existing loan with a new one — ideally one with a longer-term and lower interest rate (both would reduce your payment). If you go this route, make sure to shop around using a tool like Credible to ensure you get the best deal.


The bottom line

If you’re having a hard time making your personal loan payments, deferment may be an option. Your lender may also have other routes you can explore, including a loan modification, or you can use Credible to start shopping for personal loan refinance rates today.