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If you're struggling to keep up with your debt payments, loan deferment may be an option. Loan deferment is one of many tools you can use to help get through uncertain times, allowing you to pause your payments and giving you some wiggle room to deal with whatever issues put you in a financial bind.
Many lenders offer the chance to defer your loan payments, but the method can look different based on the type of loan you have and your lender's criteria. Read on to learn more about how deferment works and to see what loans are eligible for this method.
How Does Loan Deferment Work?
At its core, loan deferment allows you to pause or reduce loan payments for a predetermined amount of time. A deferment period can last anywhere between one month and several years, depending on the type of loan you have, your situation and what your lender offers.
During your deferment period, you don't have to make monthly payments, but interest will typically still accrue on the loan. And because you're just pausing payments, your repayment term will typically be extended for the same number of months as your deferment period.
Loan Deferment vs. Forbearance
Forbearance works similarly to deferment in that it's a way to pause your monthly loan payments, primarily when you're experiencing financial difficulties.
The two are often used interchangeably, but depending on the loan type, they can have slight differences that are important to recognize.
In the case of federal student loans—where both deferment and forbearance options exist—whether or not you accrue interest depends on the type of loan you have. What's more, if you're still in school, you'll get a deferment instead of forbearance. This is not always the case for other types of debt, however.
With credit cards, the programs are typically called forbearance instead of deferment. And if you have a mortgage loan, forbearance refers to the period in which you don't have to make payments, while deferment refers to tacking those missed payments onto the end of your repayment term instead of paying them all at once at the end of your forbearance period.
Which Loans Can I Defer?
Generally, installment loans—debt that you pay back in set monthly payments—may be eligible for loan deferment, as can credit cards, though they use the term forbearance. Each creditor will have different criteria for whether a loan can be deferred, eligibility requirements and the terms of the deferment.
The following loan types commonly offer deferment options.
Student Loans
Both federal student loans and private student loans offer deferment options. In fact, when students are in school, their student loans are typically deferred automatically. However, while parents may have the option to defer federal parent PLUS loans, they may not have that option with private parent loans.
Deferment of student loans puts off loan repayment for a period of time, and in the case of subsidized direct federal loans, interest does not accrue while a loan is in deferment.
Other types of federal student loans, such as unsubsidized direct loans, Stafford loans and parent PLUS loans, as well as all private student loans, typically accrue interest during deferment.
Federal student loans offer several opportunities to qualify for deferment after you graduate and begin making your monthly payments. At that point, though, private student loans offer more limited options. Though some private lenders may approve deferment if you're financially strapped, heading back to school or serving in the military, the list of deferment opportunities is considerably shorter.
Mortgage Loans
Again, mortgage lenders typically use the term forbearance for the period in which you can pause your monthly payments. They'll typically require evidence of the hardship and will need assurances that you'll eventually be able to return to making normal payments.
After the mortgage forbearance period ends, you'll have the option to reinstate your loan with a lump-sum amount for all the missed payments, a repayment plan that involves higher monthly payments until you're caught up, a modification to accommodate your situation or a deferment, which extends your repayment term by the number of months you missed.
Contact your lender for more information about how its specific forbearance program works.
Personal Loans
Deferment for personal loans is typically restricted to those who can show they are experiencing financial hardship and cannot make their loan payment. If you are experiencing hardship, contact your lender to see if they offer options to put off payments.
Auto Loans
Auto loan deferment is similar to that of personal loans and mortgages. Some lenders will offer a deferment option, and to qualify, you'll most likely need to show proof of financial hardship. In some cases, auto lenders refer to this agreement as a loan extension or postponement, so look out for that language when researching your lender's options.
Credit Cards
Instead of deferment, your credit card company may offer you a forbearance period, but the principle is the same: You may have the chance to pause your monthly minimum payments for a set period of time determined by your card issuer.
Who Is Eligible for Loan Deferment?
In most cases, eligibility for loan deferment is based on what type of loan you have and whether you meet the criteria for deferment laid out by your lender. You'll also typically need to show evidence that you are experiencing financial hardship as it's defined by your lender.
As outlined above, the eligibility criteria for deferment of student loans, however, are much broader. You may be able to defer your federal student loans if you are in any of the following situations:
- You're experiencing economic hardship.
- You're receiving cancer treatment.
- You're a graduate fellow.
- You're currently in school.
- You're in active-duty military service.
- You have a parent PLUS loan and your child is still in school.
- You're in a rehabilitation training program or are unemployed.
You can learn more about these options from the U.S. Department of Education.
Remember, if you fear you aren't eligible for deferment, contact your lender anyway just to make sure. Some lenders have modification options that aren't called deferment, and if you are struggling financially, they may have another alternative that could help.
How Does Loan Deferment Affect Your Credit?
Deferring repayment on one of your loans should not directly hurt your credit score. Loans in deferment will be reported as currently deferred, and other lenders can see that if you apply for more credit. But it's not considered in credit scoring calculations. When you resume regular repayment, your lender should again begin reporting your account as current.
That said, it's important to do the following:
- Keep making payments until your lender confirms that your deferment request has been approved.
- If you have autopay set up, cancel it to avoid having payments taken from your account automatically.
- Set up automatic payments again once your deferment period is over.
The Bottom Line
Loan deferment can provide you with the breathing room you need to get your financial situation in order. But in most cases, it only provides temporary relief. If you have deeper financial issues, you may want to consider other ways to tackle your debt.
During and after a deferment period, monitor your credit to make sure it gets reported accurately and that you don't experience undue damage to your credit score. And if you're working to rebuild your credit, you can use credit monitoring to track your progress and address potential problems as they arise.