If you cannot pay your Personal loan Due to financial hardship, many lenders offer short-term deferment plans that will allow you to extend the term of your loan in exchange for a break from your regular monthly payment.
Temporarily suspending your payments is not free if your lender charges interest on deferred payments. But if you need short-term relief, deferment may be an option.
What is a deferral on a personal loan?
When you defer paying a personal loan, you are not forbearing payments for those months; you extend the term of the loan by the length of the deferral period. If you defer payments for two months, for example, those payments are added to the end of your loan.
Deferring a payment means that you are delaying it without violating the loan agreement. Some lenders have offered deferred payments under a hardship program since before the COVID-19 crisis. Others tailor their hardship offerings to the individual needs of borrowers.
A lender may offer an interest-free personal loan deferral, which means that interest will not accrue on the loan when you suspend payments. Other lenders continue to charge interest on the loan during this period. If you defer two months of payments during a 36-month repayment period and the loan continues to earn interest, you will actually be paying 38 months of interest.
Calculate how much a deferral can cost
Make sure you know if your personal loan will continue to earn interest so you can calculate how much the deferral will cost.
How to defer repayment of a personal loan
Even in times of crisis, you should contact your lender and ask for deferred loan repayments. If you start making late payments or ignore them altogether without notifying your lender of a problem, your credit could be affected and your loan could be considered in default.
A lender may ask you to log on, email, or call, and answer a few questions about your difficulties with deferring payments. Few lenders disclose specific requirements for who is eligible to defer a loan.
Lenders may not be able to approve hardship applications instantly, especially if there are many borrowers applying at the same time.
How deferred payments affect your credit
Your credit score shouldn’t change much if you defer your personal loan payments because lenders aren’t supposed to report them as missed or overdue to the credit bureaus.
However, your credit rating will be affected if the lender has not approved your deferment request and you stop making payments.
Lenders usually need to make changes to your account to begin the deferment process. If you are requesting hardship and your payment is due before the lender has made a decision on your request, try to make the payment to avoid risking damage to your credit score.
Other Ways to Cut Costs in Financial Hardship
Here are some ways to get relief if you’re having trouble repaying your personal loan.
Consolidate or refinance your loan. If you have good or excellent credit, refinancing or consolidating your debt with a low-interest loan can be a way to cut costs.
If you have multiple sources of unsecured debt such as credit cards, a debt consolidation loan can consolidate all your debts into one, making it easier to manage payments. This option is generally preferable if the APR of the debt consolidation loan is lower.
Research local alternatives to a personal loan. If you’re trying to avoid getting into debt, charities, nonprofits, or religious groups in your area may be able to help. Search our database to get help in your state.
Contact other financial institutions. Financial institutions, such as banks and mortgage lenders, can still provide resources to people affected by COVID-19. If you need help, contact your insurer, credit card company, mortgage lender or bank and see if they can help you.