Sometimes circumstances change, and a loan that was affordable when you took it out becomes a burden. When you’re experiencing financial hardship, personal loan deferment is a way to delay making loan payments without affecting your credit score.
Find out what you need to know about this option, the pros and cons, and available alternatives.
Personal loan deferment is when your lender or loan servicer allows you to temporarily stop making payments on your loan. You might need to defer, or delay, your loan payments due to unusual or unexpected circumstances that affect your finances.
For example, if you’ve lost your job, are enrolled in college, or are undergoing treatment for cancer, you might not be able to make your loan payments as usual. Instead of skipping payments and risking loan default, which will negatively impact your credit score, you could apply for a personal loan deferment.
Your lender will review your information and, if you’re approved for a deferment, you can pause payments for a month or more. If you have federal student loans, you can receive a deferment when you’re enrolled in school, undergoing cancer treatments, or serving on active military duty, among other reasons. Just keep in mind that the interest will likely still accrue.
Personal loan deferment isn’t always the best choice, because it only delays your loan payments — it doesn’t change or cancel them. There may be other options that are better suited to your situation.
When you refinance a personal loan, you create a whole new loan, with new terms, that pays off the old loan (or loans). The new loan could have a lower interest rate and a longer repayment period, both of which could make your monthly payments smaller.
If your credit has improved since you first took out your loan, you might qualify for better terms, so it’s worth checking out what loan refinancing can do for your budget.
Another option is to ask your lender if you can modify the payment plan for a time. If your lender or loan servicer approves it, a loan modification can lower your monthly payment and extend the repayment period while keeping your original loan. This can free up much-needed cash for a time without the need to refinance or stop payments altogether.
Sometimes, your lender won’t allow a personal loan deferment. If that’s the case, you might check in with your other creditors instead, such as your mortgage company, credit card issuer, or student loan servicer. Let them know you’re struggling financially and ask whether they permit forbearance or deferment. If you can get a break from those lenders instead of your personal loan lender, the net result on your budget could wind up being the same.
If you’re in a really tight spot, there may be a community agency or group that can help you make ends meet. Area food pantries can help you stock the kitchen so you can apply your food budget to your loan payment, while local religious groups or other organizations might be able to help with other needs. You can dial 2-1-1 to be referred to a local agency that can help you.
Personal loan deferment could be the right choice for you if you’re experiencing a short-term change in circumstances. For example, if you’ve lost your job, it could make sense to defer your loan payments for a couple of months until you start receiving paychecks from your new employer.
It’s important to remember that deferment is a short-term solution. If your circumstances are permanently changed, refinancing might be a better option.
In general, deferring a personal loan should not hurt your credit score — unlike late or missed payments.
When you miss a loan payment, your lender can report it to credit bureaus like TransUnion, Experian, or Equifax. Missed payments negatively impact your credit score. Your payment history makes up the biggest part of your credit report, at 35%, so it’s worth doing what you can to keep current on your payments.
To be safe, check with your lender to see how they report deferments to the credit reporting agencies, and make your payments on time until you receive word the deferment is official.
Loan deferment is a short-term solution lasting at least a month and sometimes longer. If you’re approved for a deferment, your lender should be able to tell you exactly how long you have before you need to start making payments again.
It’s a bad idea to skip a payment without talking to your lender first. Missed payments are reported negatively on your credit report, and that could affect your ability to get credit later.
Personal loan deferment can be a wise choice if you’re struggling financially, because it gives you breathing room and lets you protect your credit score from the hit you’d take by skipping a payment. Talk to your lender if you’re having trouble paying your loan and see what options are available to you.
Related: Learn more about getting a personal loan