How to request a loan deferment?

For most people, taking out loans for large purchases such as a home, car or college becomes a normal part of life. The monthly payments on these loans are integrated into our budget and financial routine.

But what happens when something unexpected happens, such as losing a job or having high medical expenses, and suddenly you can't pay the monthly loan payment? It is in these cases of financial difficulty when the option of "deferring" your payments can be a lifesaver that gives you a little oxygen.

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In this article we tell you what a loan deferment or deferment consists of and how you can apply for it to be granted.

What is loan deferment?

The deferment of a loan is a period during which the obligation to make payments is temporarily suspended. Basically, it's like pressing "pause" on your loan payments.

During this time, you are not obligated to make monthly payments, so it can give you financial breathing room if you are struggling.

There are a few key things to keep in mind about loan deferment:

• It's not automatic. You must apply to your lender and meet certain eligibility requirements. Not everyone or every loan qualifies.
• Interest generally continues to accrue during the deferment period. This increases the total amount you owe.
• There are limits on the duration, typically 6 to 12 months. It is not a permanent solution.
• There can be negative consequences, such as damaging your credit or increasing the total amount of interest you pay. You should carefully consider the pros and cons.

How do I apply for a loan deferment?

The process of applying for a loan deferment involves several steps:

• Review your eligibility. Confirm that you meet the basic requirements for the type of loan and deferment program.
• Gather the required documentation. This may include proof of income, unemployment or disability certificates.
• Contact your lender. Ask for the specific application form and follow their instructions.
• Complete and submit the application. Include all required documentation.
• Wait for a decision. The lender will evaluate the application and notify you in writing of their decision.
• Sign the program documents. If you are approved, complete any additional program documents to defer the loan.
• Temporary suspension of payments. If approved, payments are suspended according to the terms and pause period.

Be sure to apply for the deferment proactively and continue making payments while your application is being processed to avoid becoming delinquent.

Pros and cons of deferring a loan

Carefully consider these pros and cons before applying for deferment:

Pros

• Gives you a temporary break from payments during hardship.
• You avoid becoming delinquent or defaulting.
• In some cases you can pause principal balance growth.
• Offers flexible options for different situations.

Cons

• Interest can continue to grow, increasing the total cost.
• Can negatively affect your credit score
• Strict time limits, not permanent.
• Too many deferments can seem like a "red flag" to other lenders.
• Some loans do not qualify for deferment.
• Requires meeting specific bureaucratic requirements

Deferring a loan can provide important breathing room during temporary difficulties with your finances if you qualify and use the option strategically. But it is not a magic solution, and it is important to also consider the disadvantages before applying.

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Moratorium and refinancing: Are they the same thing?

When it comes to easing the financial burden or adjusting the terms of a loan, it's easy to get confused by a number of similar terms.

In addition to loan deferment, two concepts that are often mentioned in the same context are moratorium and refinancing. While these terms may seem interchangeable, they have fundamental differences that are important to understand:

Moratorium

This is another option that allows for the temporary suspension of loan payments. It is often used in crisis situations, such as natural disasters or major economic events affecting a community or region.

Unlike deferment, moratorium can be applied more broadly and be a government measure.

Refinancing

Refinancing involves taking out a new loan to pay off an existing loan, usually with more favorable terms, such as lower interest rates or extended repayment terms.

It can help reduce monthly payments, the total cost of the loan, or both. It is a common strategy to improve the financial situation and take advantage of favorable market conditions.

In summary, while deferment and moratorium are temporary approaches that suspend payments on a loan, refinancing is a more structural measure that involves replacing an existing loan with a new one on different terms.

Each approach has its advantages and considerations, and the choice between them will depend on each borrower's individual needs and circumstances. Understanding the differences between these terms is crucial to making informed financial decisions.

Español: ¿Cómo solicitar el aplazamiento (deferment) de un préstamo?