3 things to watch for with Loan Deferrals
Loan deferrals are a way to delay your loan payments. While they’re most commonly associated with student loans, it is possible to qualify for a deferral on a car loan or a mortgage. Generally, a loan deferral is given to someone who is undergoing a hardship or other circumstances that make it hard for him or her to pay their debts. If you’re considering applying for a loan deferral, however, there are some things that you should know.
- Interest will continue to accrue. Even though you’re making a reduced payment, or no payment at all, interest will continue to collect on the loan. If you’re not paying anything at all, this means that you may come out of the deferral period owing more than when you started the loan. You will definitely owe more than when you started the deferral. Depending on your lender, this might mean that you have to make payments for a longer period of time, or you may have to make higher payments than what you already pay.
- There is a time limit. You cannot defer your payments forever, even if you continue to be unable to make your payments. For example, if you are able to defer your payments on a car loan because you lost your job, your lender will probably demand that you resume payments within 90 days, regardless of whether or not you have a job. If you can’t make payments by then, there aren’t a lot of choices left.
- It can ruin your credit. Depending on your lender, a deferment can lower your credit score dramatically. While there are some consumer protections in place to help people with student loans, mortgages and car loans tend to count the deferred payments as missed payments for the purposes of credit reporting. Of course, you’re probably not trying to qualify for new credit when you’ve deferred your existing loans, but the low credit score can take years to bring back up.
<p data-sp-element=”content”>Instead of going through the hassle of deferring your loans, you might just want to tai out a debt consolidation loan instead. These loans offer lower interest rates and they can extend your payments, giving you a much smaller amount to pay each month. You can make a small payment now, then build your savings as soon as your income increases. In many cases, you’ll save money with a debt consolidation loan instead of letting interest accrue.