How Does Personal Loan Deferment Work?

Many lenders offer short-term deferment plans for those who can’t make their personal loan payments due to financial hardship. These plans let you extend your loan term in exchange for a break from your regular monthly payment.

Temporarily pausing your payments isn’t free if your lender charges interest on deferred payments. But if you need short-term relief, deferment may be an option.

What is a deferment on a personal loan?

Loan deferment, or forbearance, is when a lender allows you to delay repayments on a personal loan without violating the loan agreement. Typically, when you defer a loan, you extend the loan term by an agreed-upon deferral period. Some lenders allow deferred payments for a finite period, like up to 90 days, before resuming regular payments.

Most personal loan lenders continue to charge interest during the deferred period. For example, if you defer three months of payments on a 36-month loan, and the loan keeps accruing interest, you’ll end up paying 39 months of interest.

How to defer a personal loan payment

If you can’t make payments on a personal loan, here are the steps to defer.

1. Contact your lender. Nearly all lenders require you to reach out to discuss deferment options. 

2. Provide supporting evidence. Lenders may ask for documents or proof of hardship, such as unemployment compensation.

3. Prepare for a deferment decision. Lenders may not approve hardship applications instantly, so be prepared to maintain your loan in good standing while the lender considers your situation. 

If you start making late payments or skipping them entirely without notifying your lender of a problem, your credit may be impacted, and your loan could be considered in default.

Calculate how much deferment can cost

Make sure you know whether your personal loan will continue to gather interest so you can calculate how much deferring will cost.

How deferred payments affect your credit

Your credit score shouldn’t change if you defer personal loan payments — lenders aren’t supposed to report them as missed or late to credit bureaus.

Still, you should check your credit reports to be sure payments are being recorded correctly. You can check your free TransUnion credit report with NerdWallet, or visit AnnualCreditReport.com to see your reports with the three major credit bureaus (the other two are Equifax and Experian).

Your credit score will be impacted, however, if the lender hasn’t approved your application for deferment and you stop making payments. If you have applied for deferment, but your monthly payment comes due before the lender approves your application, try to make the payment to avoid a hit to your credit score.

Other ways to manage payments during a financial hardship

Here are ways to get relief if you’re struggling to make personal loan payments.

Consolidate or refinance your loan. If you have good or excellent credit, refinancing or consolidating your debts with a lower-interest loan can be a way to cut costs.

If you have multiple sources of unsecured debt like credit cards, a debt consolidation loan can roll all your debts into one, making payments easier to manage. This option is usually best if the debt consolidation loan’s annual percentage rate is lower than the combined rate on your credit cards.

» MORE: Best debt consolidation loans

Find ways to make more cash. Consider earning money with freelance work or a temporary side gig to help make payments instead of deferring them or borrowing more money.

Reach out to other financial institutions. Contact your insurer, credit card company, mortgage lender or bank and see if they offer hardship plans that can help.

Look for local alternatives to a personal loan. If you’re trying to avoid adding debt, reach out to friends, family or your local community for assistance.