Dena Standley | May 09, 2023
Summary: A payment deferred means that a creditor and debtor have agreed to a later date for payment. It can be a practical option for those who are experiencing financial difficulty and need to delay payments. Learn more about the pros and cons of deferred payments.
A payment deferred means an arrangement where a debtor is allowed to make a delayed payment or payments for an established time period. This can be helpful for those experiencing unexpected financial difficulties due to job loss, medical issues, or unforeseen expenses that have caused temporary financial hardship. It provides temporary relief from debt repayment. However, it usually comes with additional fees and interest charges.
Deferred payments are common for numerous types of loans. Some of the most common loans that often offer a deferral option include:
When a deferred payment plan is used on a mortgage or student loan, it is typically referred to as a forbearance. On other types of loans, it is usually referred to as a deferred payment arrangement.
Regardless of the type of deferral, it is crucial to carefully review the terms and conditions before agreeing to deferred payment arrangements. In this article, we’ll explore the possible effects of deferred payments and their pros and cons.
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Payment deferrals are a type of forbearance on debt. If you find yourself temporarily unable to pay a debt on time, reaching out to discuss arrangements for deferred payments quickly might increase the likelihood of a lender working with you before your credit score suffers a negative impact from late payments. Depending on the type of loan, and the creditor, they may allow decreased or delayed payments for a specific time period—usually no longer than 12 months.
Unlike a missed or late payment, a payment marked “payment deferred” on your credit history counts as “paid as agreed” and does not hurt your credit score. However, it is important to understand that payment deferrals are not retroactive, so waiting until you’ve already missed one or two payments before seeking a deferral can do substantial damage to your credit.
Don’t make the mistake of thinking of deferred payments as free money. Depending on the arrangement you make with the creditor and how long and how much you defer, seeking a payment deferral is likely to cost you more on the overall costs of your loan.
In the following table, we’ll review the potential pros and cons of deferred payments.
|Deferred payments do not hurt your credit score.||Interest continues to accrue while payments are deferred.|
|Deferring payments can buy you time to overcome short-term financial obstacles.||Deferments add to the overall length of the loan in most circumstances.|
|The creditor may waive late fees during the deferral period.||Some creditors apply late fees.|
Now, let’s take a look at an example of a payment deferred.
Example: Kayla is having difficulty paying her student loans. The deferred payment program allows her to defer principal and interest payments for up to 12 months. During the 12-month deferment, interest accrues on the unpaid balance of $30,000. At the end of the deferment, Kayla will have to make principal and interest payments, including payments on the interest accrued during the 12-month deferral.
Whatever loan you have, it is worth reaching out to the creditor before you miss a payment to see if an option exists to defer one or more payments.
Deferring payment is not always the best option. If your financial situation has changed dramatically, reaching out to defer payments is likely just a way to kick the can down the road without solving the underlying issue. SoloSuit can help you find long-term solutions to your debt problems with its host of tools and information.
If you’ve accrued debt that you cannot pay, SoloSuit’s SoloSettle tool can help you reach out to creditors in a good-faith attempt to settle the debt for less than you owe. A payment deferred is a short-term solution that does not solve the underlying problem if you are drowning in too much debt.
However, settling your debt or forcing creditors to validate the debt through a Debt Validation Letter offer long-term solutions to taking control of your finances and restoring your financial well-being.
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