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LEGAL DICTIONARY

Loan Deferment

What Is Loan Deferment?

Loan deferment is a temporary pause on the repayment of a loan. The length of time can vary from one month to several years, depending on the type of loan and the arrangement the lender offers. Although payments are paused, interest on the loan might continue to accrue. The repayment term is usually extended for the same time as the deferment period.

Deferment on a Loan vs. Forbearance?

So what is deferment on a loan, and how is it different from forbearance? The terms "deferment" and "forbearance" are often used interchangeably since they both refer to pauses in monthly loan payments. However, there are subtle differences between the two.

The main difference is that interest accrues when a loan is in federal forbearance, while interest can be paused in some deferment cases. When interest continues to pile up during deferment or forbearance, it means you will be paying more money over the life of the loan.

With a mortgage loan, forbearance usually refers to the period when you don't have to make payments. On the other hand, deferment refers to adding missed payments to the end of the repayment period instead of paying them in one lump sum at the end of the forbearance period.

What You Need to Know about Loan Deferment

Many credit cards and loans that you repay in monthly installments may be eligible for loan deferment. Each creditor sets different eligibility requirements and the terms of the deferment. Here are some examples:

Student loan deferment

Both federal student loans and private student loans offer deferment options. According to the Department of Education, here are some of the factors that determine eligibility:

  • current enrollment in school
  • economic hardship
  • cancer treatment
  • graduate fellowship
  • active military service
  • parent PLUS loan with the child still in school.
  • enrollment in a rehabilitation training program
  • unemployment

Mortgage loan deferment

Mortgage lenders usually require evidence of financial hardship and assurances that the borrower will be able to return to making regular payments in order to grant forbearance.

Personal loan deferment

Deferment for personal loans is usually restricted to borrowers who can show they are experiencing financial hardship and cannot make their loan payment.

Auto loan deferment

Like personal loan lenders, auto loan lenders want proof of financial hardship to defer payment.

Credit card deferment

Credit card lenders may offer a chance to pause your monthly minimum payments for a specific period of time. The card issuer will determine the terms.

Does Deferment Affect Your Credit Score?

Deferring repayment on one of your loans should not damage your credit score. Other lenders can see the pause when they run a credit check, but deferment is not a factor in credit scoring calculations.

When you resume your regular repayment plan, the lender should report your account as current. It is important to monitor your credit score throughout this process to ensure the deferment's start and end are reported accurately.

Helpful Resources:
Federal Student Aid - What are loan deferment and forbearance?

Consumer Financial Protection Bureau - What is deferment?

U.S. News - Federal Student Loan Deferment vs. Forbearance

What Is Loan Deferment?

Loan deferment is a temporary pause on the repayment of a loan. The length of time can vary from one month to several years, depending on the type of loan and the arrangement the lender offers. Although payments are paused, interest on the loan might continue to accrue. The repayment term is usually extended for the same time as the deferment period.

Deferment on a Loan vs. Forbearance?

So what is deferment on a loan, and how is it different from forbearance? The terms "deferment" and "forbearance" are often used interchangeably since they both refer to pauses in monthly loan payments. However, there are subtle differences between the two.

The main difference is that interest accrues when a loan is in federal forbearance, while interest can be paused in some deferment cases. When interest continues to pile up during deferment or forbearance, it means you will be paying more money over the life of the loan.

With a mortgage loan, forbearance usually refers to the period when you don't have to make payments. On the other hand, deferment refers to adding missed payments to the end of the repayment period instead of paying them in one lump sum at the end of the forbearance period.

What You Need to Know about Loan Deferment

Many credit cards and loans that you repay in monthly installments may be eligible for loan deferment. Each creditor sets different eligibility requirements and the terms of the deferment. Here are some examples:

Student loan deferment

Both federal student loans and private student loans offer deferment options. According to the Department of Education, here are some of the factors that determine eligibility:

  • current enrollment in school
  • economic hardship
  • cancer treatment
  • graduate fellowship
  • active military service
  • parent PLUS loan with the child still in school.
  • enrollment in a rehabilitation training program
  • unemployment

Mortgage loan deferment

Mortgage lenders usually require evidence of financial hardship and assurances that the borrower will be able to return to making regular payments in order to grant forbearance.

Personal loan deferment

Deferment for personal loans is usually restricted to borrowers who can show they are experiencing financial hardship and cannot make their loan payment.

Auto loan deferment

Like personal loan lenders, auto loan lenders want proof of financial hardship to defer payment.

Credit card deferment

Credit card lenders may offer a chance to pause your monthly minimum payments for a specific period of time. The card issuer will determine the terms.

Does Deferment Affect Your Credit Score?

Deferring repayment on one of your loans should not damage your credit score. Other lenders can see the pause when they run a credit check, but deferment is not a factor in credit scoring calculations.

When you resume your regular repayment plan, the lender should report your account as current. It is important to monitor your credit score throughout this process to ensure the deferment's start and end are reported accurately.

Helpful Resources:
Federal Student Aid - What are loan deferment and forbearance?

Consumer Financial Protection Bureau - What is deferment?

U.S. News - Federal Student Loan Deferment vs. Forbearance