Racheal Vazquez

Getting a personal loan is a popular option for people in an unexpected financial crisis. Such loans allow them to handle urgent situations without hassle. Unfortunately, times are hard. The economy of most countries is in tatters due to the continuing COVID-19 pandemic. Chances are, you may find it hard to repay the loan in time.

If you are experiencing this hardship, you may wish to defer the loan repayment for a month or more. Delaying a loan repayment reduces financial stress, but in the end, increases the cost.

Lenders don’t want you to miss a payment either. However, if circumstances prevent you from paying on time, they may give you some time to reorganize yourself. Of course, your deferred payments come at a cost. Read on to understand how this process works so that you can be prepared if you have to defer a loan. 

What Is a Deferment on A Personal Loan?

When you defer a loan payment, you take a short-term break from paying a loan you owe a financial institution or independent lender. Deferring a payment does not free you from making payment but extends the loan period.

Both the lender and client must adhere to the loan terms and conditions.

Can I Defer Payment on A Personal Loan?

Yes, you can. To get a deferment, inform your lender of your situation. In most cases, lenders consider deferments for individuals in financial crises.

Some lenders grant loan deferments without interest, allowing you to repay the loan interest-free after you take a break from repaying. Others continue charging interest when you halt payments.

Let’s say your repayment period is twelve months, and you defer for two months. If the loan interest accrues, you end up paying interest for fourteen months.

Deferment periods vary from lender to lender. The majority of lenders have one- or two-month deferment terms. But this period is extendable in case the hardship prolongs.

How To Calculate How Much Deferment Can Cost

To determine how much a personal loan deferment could cost, first inquire whether your loan accruement will accumulate interest. The deferment cost will typically depend on the lender’s policies, so read the fine print on your loan. 

A personal loan deferment calculator can help you compute the cost you will incur.

Here’s an example to see how you can calculate the cost of a loan deferment: 

Say you have a loan balance of $10 000, the Annual Percentage Rate (APR) is 15%, and you plan to halt payments for two months.

First, divide the APR by the number of days in the year to get the daily interest rate. In this case, the daily interest rate is 15/365 days in a year = 0.0411 %

So, each day, the interest is 0.0411 by 100 = 4.11 dollars

Multiply the number of days in two months by 4.11 = approximately $250. The total with accrued interest is 10 000 + 250 = $10 250

How To Defer a Personal Loan Payment

It’s important to let your lender know if you have a problem repaying your loan on time. If you don’t inform them, they’ll consider this late payment as the start of a default.

Make a call, log in or send an email giving reasons for deferred payments. This action doesn’t not automatically guarantee you a waiver. A lender may not approve your deferment applications at once when many borrowers apply.

When seeking deferment, understand the rules. Know the dates when the deferment starts and ends.

How Deferred Payments Affect Your Credit

Every month, your lender describes a borrower’s payment to credit Sacco’s as;

  • Paid on time
  • Deferred
  • Paid late or delinquent

Deferring a personal loan payment does not affect your credit score as a borrower. This is because your lender notifies credit institutions. Still, ensure that you go through your credit statements to verify that they are well-recorded.

If you inform your lender about deferment on time, they should work on your approval as soon as they can. If a lender approves your loan deferment, your credit is safe. However, if the lender rejects your deferment application, it impacts your credit score negatively. This happens a lot especially when you fail to repay the loan.

Most of the time, lenders modify a borrower’s account to start the process of deferment. If by good luck you manage to get funds before approval of your application, make payment.

Keep in mind that you must apply for another deferment if the initial one ends. You may pay late fees if you forget to reapply, which again, will dent your credit score.

It is a civil crime to default a loan repayment. But it is not a criminal offense. So, there is no police arrest. The defaulters are, however, responsible for clearing off the debts they owe.

When you fail to pay the Equated Monthly Installment, the lender will send you a notification. If thirty days elapse with no response, the lender will send a notice on the address on your documents. If you fail to respond, the lender has the legal right to engage debt collectors.

A lender will state your credit scores as “written off” to the bureau if 180 days elapse before payment. They are also free to file a case against the defaulter. Section 138 of the negotiable Instruments Act, 1881 provides for this.

Debt Consolidation Loans for Blacklisted Clients

Debt consolidation is the act of getting a new loan to settle multiple debts. Ultimately, you remain with one huge debt, from a single lender. It is a good idea especially if you can get one with a lower interest rate.

If you are a blacklisted customer, and you feel that a consolidated loan might pull you out of the mad, then go for it. But, seek legal advice before you proceed. If the loan is not urgent, work on your credit score to be better. Then you can apply and be eligible for the amount of loan you want.

If you are a salaried worker, a 401k loan for debt consolidation allows clients to borrow funds from their retirement savings account. Depending on your employer’s plan, you can pledge as much as 50% of your savings to $50,000 a year.

Final thoughts

No one is immune to a financial crisis. When in financial hardship, do not be afraid to let your lender know about your situation. Work out a deferment plan together and get a temporary relief as you sort out yourself.

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