What is a personal loan deferment and how does it work?

Personal loan becoming a burden and want some room to breathe with a loan deferment? Know how personal loan deferment works, how it affects your credit score and when you should consider applying for it.

Personal loans EMI may become a burden if your finances get messed up for whatever reason. There might arise certain situations that may hamper your ability to repay your personal loan EMIs for a certain duration, like medical emergencies, job layoffs, salary cuts, or a pandemic like recent COVID-19. However, going for personal loan deferment may save you from skipping your EMIs and denting your credit score.

What is Personal Loan Deferment and how does it work?

Deferment is putting something at a later date. In the case of personal loans, this deferment concept applies to EMIs where the EMI payment due is deferred to a later date. This provides a temporary break from EMI repayments to the borrowers who are undergoing a financial crisis and not in the position to continue repayment for a certain duration.

How does Personal Loan Deferment Work?

For availing of a personal loan deferment, you need to contact your bank and explain your current situation with a request for personal loan deferment. Considering the Genuity and graveness of the situation, your lender may agree to deferment. However, you should understand the terms and conditions of deferment while applying for the same.

Points to Consider while applying for deferment

The following points should be kept in mind while applying for deferment.
  • Deferments are usually given on a monthly basis, although some banks may provide an option for a longer duration. That means a payment due on December'21 will be deferred to January'22. If you want to further defer your EMI date, you will again need to contact your bank and request a further deferment.
  • Deferment is given only for the EMI falling within the deferment period. For instance, if the EMI is due on 1st December and deferment starts from 2nd December, then you will have to pay the EMI due on 1st December. Therefore, be careful with the exact date when the deferment period starts and ends.
  • All the EMIs falling before and after the deferment period will have to be paid as it is.
    Does Deferment Affect Credit Score?

Deferment is for an agreed term between the bank and the borrower. The credit score is affected in case of non-repayment of the loan, which the lender reports to the credit bureau. However, if the lender itself has agreed to the deferment, it does not amount to non-repayment. Thus, your credit score is not affected because of the EMIs falling due within the deferment period, as those EMIs are shown as deferred instead of overdue.

However, one thing should be kept in mind that non-repayment of EMIs falling due before and after the deferment period will dent your credit score.

Is interest charged on deferred EMIs?

This depends upon the lender's policy on whether they should charge interest on deferred personal loan EMIs or not. While in most cases, the personal loan interest rates will apply, which you will need to pay later on. You can confirm this from your lender while applying for the deferment. For knowing the exact amount and tenure after deferment, you can refer to your latest repayment schedule.

Bottom Line

Deferment of personal loans comes as a saviour during times of emergency. However, it is always beneficial for the borrowers to pre-plan their budget by knowing the EMIs in advance before applying for the loan. Using a personal loan EMI calculator, one can easily know the EMI amount by just entering the loan amount, personal loan interest rate, and tenure. This will ensure that EMIs don't put stress on your finances.


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