What loans can you defer? | Personal loans and advice

Inflation continues to rise, eating away at paychecks and driving up grocery and utility bills. If you’re struggling to keep up with your loan payments on top of everything else, deferment or forbearance — in other words, deferring payment — may be an option. Depending on the type of loan you have, your choices will vary. Before deferring your loan repayments, consider the potential positive and negative effects on your financial situation.

What types of debt allow a loan deferral?

Whether you can request a deferred payment on a loan ultimately depends on two things: the type of debt you have and the lender. It is also important to note that in some cases adjournment and abstention can have similar meanings, while in others they can mean something completely different. Here’s how your options break down by loan type.

Mortgages

When it comes to suspending mortgage payments, lenders generally use the term “forbearance”. A loan deferral generally refers to missed payments under forbearance that are added at the end of your loan repayment term.

At the start of the coronavirus pandemic, some homeowners on federally backed and sponsored loans were able to get up to 18 months of forbearance. This program, which is part of the CARES Act, has since expired.

Now, mortgage forbearance options vary depending on your financial situation and your lender. Once you have completed the forbearance period, you have a few options:

  • Defer payments at the end of the loan term.
  • Pay a higher monthly payment until you’ve caught up and repaid the payments you missed.
  • Change your loan payment or interest rate to include overdue payments.
  • Pay the full amount of your missed payments in one lump sum.

Student loans

College students with federal student loans get an automatic payment deferral while they stay in school at least half-time. Even after graduating, leaving school, or no longer part-time, they have a six-month grace period before payments begin.

Even after the repayment process begins, federal borrowers can get a deferral if they:

  • Back to school.
  • Are experiencing financial difficulties.
  • Undergo cancer treatment.
  • Volunteer for the Peace Corps.
  • Lose their job.
  • Enroll in an approved rehabilitation program.
  • Enroll in an approved scholarship program.

Depending on the type of federal loans you have, the government may cover interest accrued during your deferment period, which may vary depending on the reason for your request. The Department of Education also offers separate opt-out options that you can pursue.

If you have private student loans, there are no standardized deferment programs. Each lender has their own approach to loan deferral and may only want to work with you if you are having financial difficulty.

Car loans

You may be able to defer a car loan payment if you are having trouble meeting your payments due to financial difficulties. What lenders may call a loan deferral or extension could help you avoid repossessing the vehicle.

However, deferral options vary from lender to lender, so contact yours to discuss your options.

Personal loans

Lenders generally only offer a personal loan deferral if your financial situation is dire, and as with mortgages and auto loans, the options vary depending on the lender. If you are considering applying for a personal loan deferral, contact your lender directly.

Credit card

Credit card issuers generally refer to a pause in payments as forbearance rather than deferment, but the effect is the same. If you’re having financial difficulty, contact your credit card company to see if you can get a break on your minimum payment for a while to avoid an APR penalty.

What to consider before applying for a loan deferral

If you’re struggling to meet your financial obligations because your income has dropped, you’ve lost your job, you have a mountain of medical bills, or for other reasons, deferred loans can give you temporary relief.

Not only will you be able to avoid late payment fees, but also home foreclosure, repossession of your vehicle, an APR penalty on a credit card, or default on payment.

“Deferrals may also continue to earn interest, depending on the type and terms of the loan, but generally won’t impact your credit score,” says Faron Daugs, Certified Financial Planner and Founder and CEO of Harrison Wallace. , a wealth management company.

However, a loan deferral will not last forever. In many cases, you may only get relief for a few months. “This loan isn’t going away,” says Corey Noyes, founder of Balanced Capital, a financial advisory firm. “He’ll still be around when the forbearance ends, and he’ll most likely be bigger.”

If you think your financial difficulties will last longer than that, asking for a deferral may only delay the inevitable, and it could make things worse in the long run.

With that in mind, here are some things to think about before embarking on the road to deferment:

  • Can you afford a lower payment? Some lenders may be willing to change your monthly payments to make them more manageable until you get back on your feet. With federal student loans, you can even get an income-based repayment plan for the rest of your repayment period.
  • Can you refinance your loan? A new loan term spread over a longer period will reduce your monthly payments. The main disadvantage is that you will pay more interest over the life of the loan. It could be a worthwhile compromise if it eases your immediate financial pressure.
  • Can you afford payment if you cut back in other areas? In some cases, temporarily reducing your expenses can allow you to pay off your debts. “I see a lot of cases where people go into forbearance because, in the end, it’s easier than making the changes they would need to avoid it,” Noyes says.
  • How long will it take to get back on your feet? Depending on how long your lender is willing to give you, deferment may not do much to improve your situation. If you are certain that your financial situation will remain dire in the long term, you may need to consider other options, such as credit counseling, debt settlement, or even bankruptcy.
  • Can you get help? If you have a loved one who is willing to help you with a loan until your financial situation improves, you can avoid having a difficult conversation with your lender. Just be sure to talk honestly with the person helping you about how you will pay back the money you borrowed. Also, if you feel like you have to choose between paying off your debts and meeting basic necessities, reach out to government programs and nonprofit organizations that can help pay for food, utilities, rent, and other expenses. other necessary expenses.
  • Do you need to catch up immediately after the postponement is over? Depending on the type of loan, you may not be able to carry over your missed payments until the end of your loan term. If so, “understand exactly how much you’ll be owed and put some money aside so you can meet your forbearance or deferral terms,” ​​says Daugs.

As you try to figure out what steps to take to settle your debt, consider all of your options and weigh the short- and long-term consequences to determine which course of action is best for you.

While none of these options are ideal, doing your due diligence can help limit the potential risks of loan deferral or one of its alternatives.

Comments are closed.