Personal loans are a financial aid that can help you cover your expenses, especially during unforeseen circumstances like medical emergencies or job loss. However, when you are suddenly unable to pay your monthly loan installments, you can end up struggling to make ends meet. This is where Personal Loan Deferment comes into play.
In this article, we will explore everything you need to know about Personal Loan Deferment. We will answer questions such as what it is, how it works, how to qualify, the pros and cons of personal loan deferment, and alternatives to it.
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What is personal loan deferment and how does it work?
Loan deferment is a financial tool that allows borrowers to temporarily suspend their loan repayment up to a specific period. During the deferment period, borrowers are not required to make any monthly payments. Instead, the interest in most cases will keep growing, but it will not usually accrue on the principal balance. The loan deferment is a relief to borrowers, especially for those who are struggling with financial hardships, such as job loss, illness, and natural disasters.
What is the difference between deferment and forbearance?
Deferment and forbearance are both financial tools for borrowers to suspend their loan payment. Deferment, as mentioned earlier, is the temporary suspension of loan payment, and the loan accrues no interest or penalties. Forbearance, on the other hand, is temporarily suspending loan payment, but interest and penalties usually accrue on the principal balance during the forbearance period.
How does one get personal loan deferment?
To get personal loan deferment, you need to begin by contacting your lender and asking them about the deferment options available. Provide your lender with detailed information about your financial situation. Necessary documents may be required to prove eligibility before the deferment process can be initiated.
What are the qualifications for deferment on a personal loan?
Eligibility requirements may vary from lender to lender. In general, the borrower needs to prove that they are experiencing financial difficulties to qualify for a deferment. Situations that may qualify one for personal loan deferment include; a medical emergency, unemployment, or returning to school. However, if a borrower has defaulted on the loan or has declared bankruptcy, they may not qualify for personal loan deferment.
Pros and Cons of Loan Deferment
Now that we’ve explored what deferment of a personal loan is and how to qualify for it, let’s delve into the advantages and disadvantages of this financial tool.
Pros:
- Loan deferment provides relief to borrowers who are struggling with financial difficulties.
- It helps prevent default or delinquency, which can negatively affect the borrower’s credit score.
- Deferment can improve the borrower’s financial stability and improve their chances of repaying the loan.
Cons:
- Interest may still accrue during the deferment period, increasing the total balance owed and the duration of the loan.
- Deferment may increase the total cost of the loan due to accumulated interest, and therefore, It may take longer to pay off the loan.
Alternatives to Personal Loan Deferment
Loan deferment isn’t the only option for those who are struggling with their loan payments. Here are some alternatives you can consider:
-Refinancing
Choosing an alternate payment plan that suits your income and can help you avoid loan default.
-Loan consolidation
Consolidating loans allows the borrower to combine multiple loans into one, often with a lower interest rate or longer repayment period.
-Debt settlement
This involves negotiating with creditors to settle debt for less than what is owed. It can help reduce your total debt and make repayment easier.
-Getting a loan from family or friends
This is an option for those who need a short-term loan to pay off their existing debts. It’s important to note, however, that borrowing money from family or friends can be risky if the borrower cannot pay it back.
-Seeking help from a credit counselor
Seeking help from a credit counselor or financial advisor can help you make the right decision for your financial situation.
Conclusion
Personal loan deferment is a useful tool that can benefit borrowers who are facing financial difficulty. However, it is essential to consider the pros and cons of loan deferment before deciding to pursue it. To qualify for loan deferment, you must meet specific requirements, and it is up to the lender to approve or deny the application. By understanding loan deferment, you can be proactive in securing your finances during unforeseen circumstances.
