What Is Loan Deferment?
Loan deferment is a temporary suspension or reduction of repayment obligations that a borrower can request from a lender. During the deferment period, payments are either postponed or reduced, and interest may be frozen or continue to accrue depending on the type of loan and the lenders policy.
Deferment is intended to help borrowers who are facing shortterm financial hardship, such as loss of employment, medical emergencies, or other unforeseen circumstances that affect their ability to meet regular payment schedules.
When Can You Apply?
Most lenders allow deferment requests under the following conditions:
- Unemployment or reduced income for a minimum of 30 days.
- Serious illness or disability that prevents you from working.
- Military deployment or active service.
- Natural disasters or other events that cause a temporary loss of income.
- Enrollment in a governmentapproved educational program (for student loans).
Each lender may have its own eligibility criteria, so it is essential to read the loan agreement or contact the loan servicer directly.
Benefits of Deferment
Choosing deferment can provide several advantages:
- Cashflow relief: Frees up money for essential expenses.
- Avoidance of default: Prevents negative credit reporting.
- Time to recover: Allows borrowers to stabilize income before resuming payments.
- Potential interest freeze: For certain loan types (e.g., subsidized student loans) interest does not accrue during deferment.
However, it is important to understand that for many loan types interest continues to accrue, which can increase the total amount owed.
Typical Documentation Required
To process a deferment request, lenders generally ask for the following documents:
- Completed deferment application form (often downloadable from the lenders website).
- Proof of hardship, such as:
- Recent pay stubs or unemployment benefit statements.
- Medical certificates or hospital bills.
- Military orders or deployment letters.
- Insurance claim statements for disaster loss.
- Bank statements covering the past three months.
- Proof of residence (utility bill or lease agreement).
- Any additional forms required by the specific loan program.
StepbyStep Guide to Submit Your Application
1. Review Your Loan Agreement
Locate the section on repayment options and deferment. Note the eligibility criteria, interest treatment, and maximum deferment length.
2. Gather Required Documents
Collect all supporting documents listed above. Keep digital copies (PDF or highresolution JPG) ready for upload.
3. Complete the Application Form
Log in to your lenders online portal or download the printable form. Fill in personal details, loan account number, reason for deferment, and desired deferment period.
4. Attach Supporting Files
Upload each document in the format requested. Make sure file sizes do not exceed the portals limits.
5. Submit and Confirm
After submitting, you should receive an acknowledgement email with a reference number. Keep this number for future correspondence.
6. Follow Up
If you do not receive a decision within the timeframe stated (usually 1015 business days), contact the loan servicers customer service department.
Impact on Credit Score
Deferment itself does not automatically lower a credit score, provided the borrower complies with the lenders terms. Problems can arise if:
- The borrower misses a payment before the deferment is officially approved.
- The lender classifies the deferment as a delinquency because required documentation was incomplete.
To protect your credit, ensure the deferment is approved before missing any scheduled payment.
Alternatives to Deferment
If deferment is not suitable, consider these options:
- Forbearance: Similar to deferment but often used when the borrower does not meet strict deferment criteria; interest typically continues to accrue.
- Loan modification: Permanent change to the loan terms, such as extending the repayment period or reducing the interest rate.
- Refinancing: Replacing the current loan with a new one that has lower monthly payments.
- Payment plan adjustment: Temporary reduction in monthly payment amount without a formal deferment.
Frequently Asked Questions
Can I defer a loan more than once?
Yes, but most lenders limit the total number of deferments or the cumulative length (e.g., no more than 12 months in a 24month period). Review your agreement for specific limits.
Will interest be added to my balance?
It depends on the loan type. Subsidized student loans and some governmentbacked mortgages freeze interest; most private loans and unsubsidized student loans continue to accrue interest.
Do I have to pay fees to apply?
Most lenders do not charge a fee for submitting a deferment request, but a processing fee may apply for some loan programs.
What happens after the deferment period ends?
Regular payments resume automatically. Some lenders may offer a reentry plan that starts with lower payments for a few months.
Sample Deferment Request Letter
Below is a concise template you can adapt to your circumstances:
[Your Name][Address][City, State ZIP][Phone] | [Email][Date][Loan Servicer Name][Servicer Address][City, State ZIP]Re: Request for Deferment of Loan Repayment Account #[Your Account Number]Dear Sir/Madam,I am writing to formally request a deferment of my loan repayments due to [briefly state reason e.g., recent loss of employment, medical condition, military deployment]. Enclosed are copies of the supporting documents:- [Document 1]- [Document 2]- [Document 3]I am requesting a deferment period of [number] months, beginning on [start date] and ending on [end date]. I understand that interest [will/will not] continue to accrue during this period and I am prepared to resume regular payments on the agreed date.Please acknowledge receipt of this request and inform me of any additional information required to process my application.Thank you for your consideration.Sincerely,[Your Signature][Your Printed Name]
Adjust the template to match the specific language used by your lender.
Contact Resources
For more assistance, consider reaching out to:
- Your loan servicers dedicated deferment hotline.
- Consumer Financial Protection Bureau (CFPB) offers guidance on borrower rights.
- Nonprofit credit counseling agencies (e.g., NCCU, FCA).
- Legal aid services if you believe your rights have been violated.
