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Deferring loan payments might let you skip or move several payments without affecting your credit scores. If you're struggling to afford payments and think you might miss one soon—or you've missed several payments and are trying to catch up—a deferment could help you get back on your feet.
How Does Deferring a Payment Work?
Deferring payments can work differently depending on the type of loan. Generally, you need to request a deferral, and your lender or loan servicer will decide if it wants to grant you a deferral and the terms it offers. You might qualify if you:
- Lose your job
- Have an unexpected major expense
- Get hurt or diagnosed with a serious illness
- Are impacted by a natural disaster
Deferral options can also depend on the type of loan, and here's how they generally work:
- Federal student loans: Your federal student loan payments may be automatically deferred while you're in school. Additionally, you can request a deferral afterward based on different life events, such as going back to school, losing your job or dealing with financial hardship. The Department of Education's website lists the eligibility requirements for deferment and forbearance, a similar option that may let you temporarily stop making payments.
- Personal loans and auto loans: Personal and auto loan deferments often work similarly. You may be able to temporarily pause your payments and add those skipped payments to the end of your loan's term. For example, if you were supposed to pay off your loan in January and deferred payments for three months, you would now pay off the loan in April. With personal and auto loans, these hardship options might be called a loan extension, postponement or forbearance.
- Mortgages: If you're struggling with mortgage payments, you might be able to temporarily pause your payments by putting your loan into forbearance. When the forbearance ends, your mortgage servicer may want you to repay the accrued past-due amount in full or over time with a payment plan. But, if you can't afford these options, you might be able to defer the unpaid balance and wait to pay it until you pay off your loan, sell your home or refinance your mortgage.
If you ask for a payment pause or deferment, continue making your payments until you're certain that you're approved and are allowed to stop making payments.
Does Deferring a Payment Hurt Credit?
No, deferred payments generally won't directly hurt your credit. When a creditor defers your payments, it can report your account's new status to the credit bureaus—Experian, TransUnion and Equifax. While this appears in your credit report, the deferment status won't directly help or hurt your credit scores.
But deferred accounts can continue to impact your credit scores. For example, the account's payment history could still affect your scores, so previous late payments might hurt your scores and a history of on-time payments might help them. The account's age can also affect the length of your credit history, which might help your scores.
Will I Be Charged Interest During Deferment?
You will generally be charged interest as usual while you're postponing your payments.
- You may be charged interest while your mortgage is in forbearance, but not on the deferred amount. With a mortgage, your interest continues while you're postponing payments during a forbearance period. At the end of forbearance, you might be able to defer the missed payments. However, the deferred amount generally won't be added to your loan's principal or accrue interest.
- You might not pay for interest that accrues on some federal student loans. Federal student loans accrue interest while you're pausing payments via deferment or forbearance. But the government will pay the interest that accrues on your subsidized student loans and Perkins loans during deferment. Unpaid interest also gets capitalized—added to the loan's principal—when your payments resume, which can increase how much interest accrues in the future.
- Auto and personal loans may accrue interest like normal. Auto and personal loans could let you temporarily pause and then defer payments to the end of your repayment term. Your loan may continue accruing interest as usual, which could lead you to repay more than you would have otherwise.
Loan Deferment Alternatives
You may have several alternative options if you can't afford your payments or have past-due payments and you don't qualify for deferment. Your options could depend on the type of loan, your lender or loan servicer and the reason you're struggling to afford payments. But they may include:
Look Into Other Hardship Options
Contact your lender or credit card issuer to see if it offers alternative hardship programs and options. Even if you can't defer a payment altogether, you might be able to temporarily lower your minimum payments or interest rate to make your payments more affordable. Creditors also might waive outstanding fees to help you keep your account current.
Refinance or Consolidate Debt
If you have good credit, you might be able to refinance a personal loan or consolidate credit card balances. You might save money as well if you can qualify for a lower interest rate. But, even if you don't, choosing a longer repayment term could lower your monthly payments and help you afford all your bills. Refinancing a mortgage is more complicated and can involve closing costs, but there may be options that don't require any upfront cash and help lower your payments.
Switch Federal Student Loan Payment Plans
Federal student loans are unique in that you can choose from several repayment plans and switch your plan for free. There are even income-based repayment plans that could lower your monthly minimum payment to $0. Refinancing federal student loans with a private loan might be an option as well. But private student loans don't have access to the same repayment plans or forgiveness programs.
Try to Modify the Loan
A loan modification permanently changes your loan's terms instead of temporarily letting you skip payments or move unpaid balances. For example, the modification might permanently lower your interest rate or extend your loan's term to lower your monthly payment. Creditors generally won't modify your loan unless they believe you're struggling to afford your payments now and will be able to afford them after the modification.
Look for Financial Assistance
You might be able to qualify for financial assistance programs that can free up money in your budget for the loan payment. There are government assistance programs that can help with some basics, such as food and energy bills. You can also call 211 or use its website to look for local programs and assistance.
Get on a Debt Management Plan
Nonprofit credit counselsors may offer free review sessions to look over your budget and bills. If you're struggling with unsecured debt, such as credit cards, the counselor may be able to get you on a debt management plan (DMP). These plans can require you to close and stop using credit cards, but the counselor can also negotiate with your creditors to lower your monthly payments, waive fees and bring past-due accounts current.
Monitor Your Credit to Understand Your Options
If you're struggling to afford your bills or have missed several payments, reach out to your creditors right away to discuss your options. You might be able to defer payments or use a different hardship option—especially if you can't afford a bill because of unforeseen circumstances, such as a lost job or medical emergency. Additionally, you can monitor your credit report FICO® Score☉ from Experian for free. Building and maintaining good credit can give you additional options for managing your debts.