Deferment

Deferment in personal finance or with personal loans is when a borrower temporarily postpones making payments on their loan for a specified period.

Example #1

For example, if a student loan borrower is going back to school or facing financial hardship, they may request a deferment, allowing them to pause their loan payments without incurring penalties.

Example #2

Another example is a homeowner requesting a mortgage deferment due to a temporary loss of income.

Misuse

Misuse of deferment can happen when lenders do not clearly explain the terms and consequences associated with deferment. For instance, a lender may offer a deferment option while hiding the fact that interest continues to accrue during the deferment period. Consumers may unknowingly end up owing more than they expected due to the added interest. It is crucial to protect against this misuse by carefully reviewing all terms and conditions before agreeing to deferment.

Benefits

One of the benefits of deferment is that it provides temporary relief for borrowers facing financial challenges. It can be a valuable tool for those experiencing hardships, allowing them to focus on addressing their financial situation without the immediate burden of loan payments.

Conclusion

Deferment can be a useful option for borrowers in need of temporary financial relief, but it's essential to fully understand the terms, including any accruing interest during the deferment period. Consumers should always review the terms of deferment carefully and seek clarification from lenders if needed.