Loan deferment refers to being allowed to skip a loan payment without affecting your credit rating. Most types of loans can be deferred with lender approval including car loans, home mortgage loans and student loans. Each type of loan carries a different deferment process and each lender has their own set of loan deferment policies and procedures.
Loan deferment payments are generally rolled to the end of the loan, which in turn extends payment terms. The first step to obtaining a loan deferment involves contacting the lender. Most lenders require borrowers to submit a financial hardship letter detailing events which have caused them to be unable to adhere to their payment schedule.
Depending on the circumstances and type of loan, lenders can defer loan payments by as much as six months. However, the average loan deferment is two months. Only under extreme circumstances will lenders defer loan payments for extended periods of time. Prolonged deferment plans are usually reserved for borrowers with exceptional credit and a long history of making payments on time.
Students enrolled in college at least half time, can apply for in school deferment to temporarily suspend payments while attending college. This option is sometimes available to students who have entered into college loan consolidation. College loan deferment is only available to students enrolled in eligible learning institutions and does not cover correspondence and on-line education programs.
Borrowers must submit a loan deferment application and undergo an approval process. This can take as little as one day or several weeks. Be certain to retain a copy of loan deferment paperwork and keep a record of all correspondence and phone calls. Write down the date of the phone calls, name of the person you spoke to and an overview of the conversation. Retain delivery courier records to show proof the application was received by the lender.
Regardless of the type of loan deferment, ask the lender to provide a forbearance agreement. This document ensures the lender will not proceed with collection actions or repossession of property as long as borrowers adhere to the terms of the forbearance. This is particularly important for homeowners entering into a forbearance agreement to stop foreclosure.
Prior to signing loan deferment contracts be certain to read the fine print and fully understand the terms. Borrowers should know how many loan payments will be deferred, due date of deferred loan payments, repayment schedule, if the lender charges a fee for loan deferment, and if the lender will report deferred payments to credit reporting bureaus.
Always ask for loan deferment agreements to be placed in writing. The biggest mistakes borrowers make are being timid when asking for a deferment plan and not obtaining a written contract. If things go sideways, borrowers must provide documentation to prove their case.
Delinquent loan payments can lower FICO scores and damage credit. Sometimes lenders make mistakes and report deferred payments to credit bureaus. The only defense for debtors is to have a written contract stating the lender has agreed not to report late payments.
Loan deferment is one option for obtaining debt relief. We invite you to learn more about managing finances and money-saving strategies in our personal finance article library. Our database encompasses a variety of topics including how to pay off credit cards, debt consolidation, budgeting, credit counseling, bankruptcy, and how to prevent foreclosure.