Here’s how personal loan deferment works.
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Here’s How Personal Loan Deferment Works
A delay in the personal loan payment can relieve financial stress for a month or two but the overall amount could increase.
Updated on January 6 2022.
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If you’re unable to make your due to financial hardship, many lenders offer temporary deferment programs that let you extend the loan period in exchange for a reduction from your regular monthly payment.
The option of temporarily suspending the payment process isn’t a free option when your lender charges interest on payments deferred. But if you need temporary relief, deferment could be an option.
What exactly is deferment? an individual loan?
If you delay the personal loan payment however, you’re not exempting yourself from the month’ payments; you’re extending the loan term by however long the deferral timeframe is. If you defer two months’ installments, for example, those payments are tacked onto the end of the loan.
Deferring payment means that you’re putting it off without breaking an agreement in the loan agreement. Some lenders have offered deferred payments as part of a program for hardship before that crisis in COVID-19. Other lenders tailor their hardship offers to meet the needs of the borrower.
A lender could offer the option of interest-free loan deferment, meaning interest won’t be charged on the loan even if you stopped paying. Some lenders will continue to charge interest on the loan during that time. If you delay two months of payment during a 36-month repayment term and the loan keeps accruing interest, you’ll be paying an interest rate of 38 month.
Calculate how much deferment can cost
Be sure to know if the personal loan is going to continue to collect interest , so you can figure out the cost of deferring.
How do I delay the personal loan payment
Even in a time of time of crisis, you need to make contact with your lender and ask for deferred loan payments. If you start to make payments that are late or stop entirely without notifying your lender of the issue your credit could be affected and your loan may be considered .
A lender might require you to log in, email or call and answer a few inquiries about your circumstances to be able to delay payments. A few lenders provide specific requirements on who can be deferred the payment of a loan.
The lenders might not be able to accept requests for hardship in a timely manner, especially in the case of a large number of applicants all at once.
How deferred payments affect your credit score?
Your credit score shouldn’t change significantly if you delay personal loan payments since lenders aren’t required by law to report these as unpaid or late to credit bureaus.
But, you must examine your credit reports to be sure it’s being recorded correctly. You can do this with NerdWallet or visit to see your credit reports from the three major credit bureaus (the other two include Equifax as well as Experian).
Your credit score could be affected, but only if the lender hasn’t approved your request for deferment and you cease making payments.
Lenders usually need to make changes to your account before they can begin the deferment process. If you apply for hardship and your due date is before the lender has made an assessment of your application, you should pay the amount due to avoid risking a hit to your credit score.
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Other ways to cut costs during a financial hardship
Here are some ways to find relief in the event that you’re struggling to pay personal loan payments.
Consolidate or refinance your loan. If you have good or excellent credit, or consolidating your debts with a lower-interest loan can be a option to lower expenses.
If you have several sources of debt that are not secured, such as credit cards, you can combine all of your debts into one loan, making repayments simpler to manage. This method is generally recommended when you can find a debt consolidation loan whose annual percentage rate is less.
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Consider local alternatives to take out a personal loan. If you’re trying to stay clear of adding debt, there may be charities, nonprofits or religious organizations in your local area that help. to get help in your state.
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Reach out to other financial institutions. Financial institutions, such as banks as well as mortgage lending companies, could offer assistance to those who are affected by COVID-19. If you are in need of help, contact your insurer, credit card company, mortgage lender , or bank and see if they can provide assistance.
About the writer: Annie Millerbernd is a personal loans writer. Her writing has been featured on The Associated Press and USA Today.
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