Deferment

Deferment summary:

• Deferment is when a lender lets you temporarily pause payments on a loan. 

• Some lenders require proof of financial hardship to qualify for a deferment. 

• During the deferment period, you don’t have to make regular payments and you won’t suffer credit score damage if you don’t. But you might be charged interest. 

Deferment definition and meaning

Deferment lets borrowers take a temporary break from making payments on their loans. Deferment can help you keep your loan account in good standing while navigating times of less financial means. A benefit is that pausing payments during deferment won't hurt your credit score. Many lenders allow borrowers to take a deferment, but the specific details can vary by lender and loan type. 

Key concept: 

Deferment is a temporary payment pause. 

Deferment: a comprehensive breakdown 

Deferment postpones payments for a short time—but not forever. Payments are temporarily paused during the deferment period. The length of a deferment period can be anywhere from one month to several years, depending on the loan type and lender. You can ask your lender for more information about how they handle deferments. 

Deferment isn't automatic. You would need to apply for your lender’s deferment program. Make sure you understand the eligibility requirements, terms, and length of the deferment period. You'll likely be asked for proof of financial hardship. 

While deferment won't hurt your credit score, it can show up on your credit report. Having an account marked for deferment on your report could impact future lending decisions. But deferment could give you the breathing room you need to get on track with your finances. 

Deferment may be available for the following types of loans:

• Student loans

• Personal loans

• Auto loans 

• Mortgages 

Loan deferment example

If you're a full-time student, your student loan lender could let you apply to defer payments until you graduate and have a chance to look for a job. They may ask for proof of your full-time enrollment.

More about deferment 

One drawback of deferment is that your loans will likely still accrue interest. While you can stop making payments on your loan for a short time, you could still be charged interest during the deferment period. That means your balance will increase while your loan is deferred. (If you have a subsidized federal student loan, the government pays the interest while you’re in deferment.)

If interest is added to your balance and you don’t make a payment, you’ll have a new, higher balance. Then you’ll be charged even more interest. That’s called interest capitalization. You could avoid interest capitalization if you pay at least enough to cover the interest during your loan deferment.

Another potential drawback is that some lenders make borrowers get caught up on payments right after the deferment period ends. In other words, if your lender lets you defer payments for three months, you might be expected to make four full payments in month four. Read your deferment agreement to make sure you know what you'll have to do before you take a loan deferment.