What to know if you defer your personal loan
Many of us today are experiencing financial difficulties. Whether you lost your job during the pandemic or had unexpected medical bills, it can be difficult to make ends meet. Many Americans have been forced to put home and student loans on hold, and some have even seen their credit card debt rise. For people who have a personal loan among their debts during the crisis, it is possible to relieve themselves by requesting a personal loan deferral.
A postponement is when your lender approves a temporary halt in payments on a loan without penalty such as causing bad credit until your financial situation changes. While it can help in the short term if you can’t pay your bill, it’s important to understand the long-term impact.
You can explore your best personal loan options by visiting Credible to speak to a personal loan expert and compare options without affecting your credit.
WHAT IS THE PERSONAL LOAN DEFERRED?
How does the personal loan deferral work?
To postpone a personal loan, you must contact your lender and explain your situation to them. While they don’t have to offer a deferral, many lenders will work with borrowers to find a solution and restructure a repayment plan, especially in today’s economy.
Lenders typically grant postponements in one-month periods, although it is possible to request another postponement. Generally, an adjournment extends the term of office by the approved term. For example, if your debt was to be repaid in May 2022 and you were offered a one month deferral, the loan will now end in June 2022. In some cases, however, instead of extending the term of the line Of credit, the borrower has a lump sum payment at the end of the original due date with the deferred amount. Check with your lender for clarification.
Many lenders limit the number of times borrowers can request a deferral, while others review cases individually. If you have a one month deferral and can’t pay the bill at the end of that time, you can contact your lender again to request another deferral.
3 things to know if you’re deferring your personal loan
While a deferral can help you until you get back on your feet, it’s important to know the terms so you don’t end up with further financial problems or bad credit down the line.
1. Interest: Although you don’t have to make the payment, interest does accrue. Get an idea of the personal loan rate by looking at your most recent loan statement. It should list your loan rate interest charges. This amount will be added to your loan balance, and you will have to pay it off when you resume paying off your loan.
During the pandemic, some personal loan lenders did not continue to earn interest on deferred loans. It is important that you speak with your bank or credit union to find out about their policies. You can also visit Credible to get in touch with experienced loan officers who can help you answer your personal loan questions.
2. Credit score: If you are approved for a personal loan deferral, your credit score should not be affected. Normally, lenders would report a missed payment to the credit bureaus as overdue. In this case, however, they will flag it as deferred on your credit history, which will not give you a bad credit rating.
3. Payment dates: It is important to know the start and end date of your deferral period so that you know when to resume paying your loan. If you miss your next payment after the deferral ends, you may incur late fees and your lender will report the missed payment to the credit bureaus.
CAN’T PAY A PERSONAL LOAN? TAKE THESE 6 STEPS
Is deferring a personal loan a good idea?
While writing off debt during a time of financial hardship can help you get back on your feet, deferring a personal loan has its pros and cons.
First of all, the benefits: a deferral takes a bill off your plate, allowing you to focus on essential expenses like rent, food and utilities. It can give you peace of mind and the ability to work to correct your financial situation without affecting your credit.
This is because a deferred loan option also allows you to avoid a missed payment report on your credit history and late fees. If you have an asset as collateral for the loan, you don’t have to worry about repossession either.
But there are downsides. First, deferring a loan payment increases the total amount you pay for the loan. Depending on the rate and your personal loan balance, it can add up, especially if you can’t get back on your feet quickly.
Deferring a loan also increases the length of the term. If you are working on eliminating your debt, it will take you longer to reach this goal. And the deferral adjusts your amortization plan, impacting the equity of the financed collateral.
If you need help weighing the pros and cons, Credible can put you in touch with experienced loan officers who can help answer your questions about personal loans.
3 THINGS TO KNOW TO REFINANCE A PERSONAL LOAN
Make your decision to postpone
While a loan deferral can be a good option, it is not the only one. You might want to consider a debt consolidation option to combine your monthly payments into one lower amount. You will need a good credit rating to benefit from better terms. You can also refinance your personal loan to improve your interest rate. Credible’s personal loan calculator can help you determine what a new payment might be.
Make sure you take your time in making your decision so that a short-term solution doesn’t have lasting consequences.
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