When you are in hard times financially, unable to make your loan payments, you can apply for loan deferment. But how does personal loan deferment work?
Well, loan deferment allows you to hold your loan payments until you are stable again. During this time, your accounts remain current but interest continues to accrue. Therefore, this short-term solution may not be the best idea for everyone.
Continue reading to find out how personal loan deferment works so you can determine whether it’s the right option for you. We have also mentioned some alternate ways to manage your loan payments if you are in financial hardship.
What Is Personal Loan Deferment?
Personal loan deferment refers to postponing your monthly loan payments for a certain timeframe during financial difficulties. During deferment, your payments are put on hold, but your account stays in good standing.
You can avail a loan deferment if you have taken out certain types of installment loans, like personal loans, student loans, car loans, and mortgages. Keep in mind that most lenders will require proof that you’re facing financial difficulties to approve a deferment request.
How Does Personal Loan Deferment Work?
To apply for a personal loan deferment, you’ll need to get in touch with your lender and share proof of your current financial situation.
If your deferment is approved, your lender will send you a letter outlining the new terms of your loan, including any interest that may accrue and when your next payment will be due.
Each lender has specific requirements, but you may be eligible for deferment if you’re facing economic strain caused by medical issues, reduced work hours, unemployment, or if you have lost your partner’s income.
Some lenders might also require documentation of your problems before approving the deferment. Keep in mind that until your deferment request is officially approved, you’re still responsible for making your loan payments.
For example, if your monthly loan payment is due on the 10th and you apply for deferment on the 5th, you’ll be obliged to make the payment to avoid any late fees or penalties.
Be aware that, unless you have a subsidized federal student loan, you will need to pay the interest that accumulates during the deferment term. This can result in higher monthly payments.
How to Manage Personal Loans During Financial Hardship (Other Options)
If you’re facing financial challenges and you don’t want to opt for loan deferment, there are a few other ways to navigate the situation:
1. Refinance Your Loan
Loan refinancing involves replacing your current loan with a new one that has different terms and possibly a lower interest rate. This can reduce your monthly payments by securing a better rate or extending the repayment term.
You can either refinance a single loan or consolidate several into one. Keep in mind though that you’ll need a steady income and a great credit score for refinancing to be beneficial.
2. Modify the Loan
Loan modification refers to adjusting your loan terms to lower your monthly payments. This often involves increasing the length of your repayment period, which could mean paying more in interest over time. However, it can be a helpful solution if you’re unsure when your financial situation will improve.
3. Create a Debt Repayment Plan with a Professional
If you’re feeling overwhelmed by debt, working with a credit counselor could help. Many agencies offer these services for free or for a small fee, making it a valuable resource for managing your debt.
These professionals can guide you through your options and help you create a debt repayment plan tailored to your financial situation.
Take Control of Your Financial Situation
Whether you’re considering deferment, refinancing, or exploring other options, it’s important to choose a solution that works for you. If you’re looking for flexible financial support during tough times, consider a personal loan with easy terms that fit your needs.
Apply now to get immediate financial relief!
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