Loan Deferrments

For those who are in a dire financial situation, a loan deferment may be the answer. This type of loan relief will defer loan payments for a certain period of time, usually 12 months, to give the borrower time to get financially stable enough to make payments on time, without harming their credit file or FICO score. When a loan deferment is processed, it reports to all three credit bureaus as "paid as agreed" so that the borrower does not suffer. It shows that the borrower is willing but unable to make the payments as set forth in the terms of the loan. While a deferment is a nice option to have, you must first qualify for it. Without qualifying, the absence of loan payments will put loans in default and make credit scores plummet.

Types of Loan Deferment

There are few different loan deferment types available. Depending on the lender and the purpose of the loan, there may be others available. Discuss deferment options with the lender to decide which one has the best chance of being approved.

Unemployment or Economic Hardship: Borrower must be able to show that he or she does not have a job or the job he or she has does not provide enough income to sustain them with housing, food, and utilities if loan payments were made.

Military Deferment: Borrower must prove that he or she is serving active duty with a branch of the U.S. Military.

School Deferment: Borrower must prove that he or she is at least a half-time student at an accredited education institution. If at any time courses stop, the loans become due again. Otherwise, the student has 6 months after graduation to begin repayment.

Deferment Process

First, request the necessary deferment application from the lender. Fill out the application and return supporting documents, such as pay stubs, tax returns, or proof of college enrollment, to the lender in a timely manner to ensure the application is received and processed quickly. Payments must continue to be made on time until the deferment has been approved or the credit score will suffer. If forbearance is an option, consider a verbal forbearance agreement to cover the time between the last payment and the deferment approval.

Deferment Not Approved--Now What?

If the deferment is not approved and forbearance is not an option, borrowers should negotiate with the lenders to arrive at a payment plan agreement they can handle. Though the loans will continue to collect interest, as long as borrowers are making a consistent effort to pay something on their balance, lenders usually don't get upset too much.