Can Consolidation Loan Repayment Be Deferred?
If one undergoes an economic hardship, such as job loss due to the COVID-19 pandemic, then they may be able to enter a deferment plan with their lenders. This will allow them to miss an agreed-upon number of payments on their personal loan.
Although this may be helpful for some, not everyone understands what this process is and how it works. Keep reading to learn more about this loan option.
What Is A Loan Deferral
As most people are aware of, when one takes out a personal loan, they’re required to make monthly payments over an agreed-upon term until the debt is paid off. If there’s some major change in the circumstances of the borrower that makes them incapable of meeting their debt payment obligations, then the lender may grant them loan deferment.
A loan deferral effectively gives the borrower temporary relief from having to make any debt payments. Once the deferral period is over, the number of missed months is then added on to the original term of the loan. Sometimes, lenders may charge fees or interest on any deferred amount, which is tacked on to the loan balance at the end of the grace period.
In some cases, a lender may even increase the loan's interest rate for the remaining life of the debt after the grace period ends. Therefore, it’s always important to closely examine the terms of a deferral agreement because in some cases it could end up costing the borrower more than they had anticipated.
How To Defer Personal Loan Payments
Those who want a personal loan deferral must contact their lender directly and apply through the appropriate channels. In most cases, the lender will require the borrower to complete and submit a hardship application. The appropriate parties will then review this.
If approved, the lender is then presented with paperwork to read and sign. It’s within this paperwork that all the terms of the agreement will be listed, including any fees or other penalties that the borrower may be subjected to.
It’s worth noting that hardship applications aren’t typically approved as quickly as a loan application. They can take up to ten business days to be approved or rejected.
What Type Of Personal Loans Can Be Deferred
- Student loans: COVID-19 has left many students asking “can I postpone my student loan payments?” The answer to this depends on who granted the loan. Those who have federal student loans will be covered under the CARES Act. These students will receive payment deferral until September 30th, 2020. No interest will accrue during this time. Students who have obtained their educational loans through private lenders will have to contact their lenders directly and apply for payment postponement. While many lenders are granting student loan deferrals, they’re under no obligation to. Therefore, some may choose to deny one’s request
- Personal loans: Personal loans, including debt consolidation loans, may also be subject to a payment postponement under certain circumstances. Unlike federally backed loans, personal loans aren’t covered under the CARES act. The borrower will have to apply for deferral with their lenders directly
- Mortgages: All federally backed mortgages qualify for payment deferral under the CARES act. This includes VA and USDA mortgages as well. Mortgages received through private lenders will be considered on an individual basis. Therefore, mortgage payment relief isn’t guaranteed. That being said, nearly half of all US mortgages are granted by Fannie Mae and Freddie Mac. The two organizations have publicly committed to offering mortgage postponements to those who need it during the pandemic
In some cases, debt deferral may not be available to some individuals. This will be more common when it comes to credit card debt, as not all issuers are offering payment relief. Although this is true, some credit card companies may be willing to allow a borrower to miss a payment or two if they’re contacted ahead of time.
Consolidation loans are another option available to those having trouble making their credit card payments. Several online lenders offer debt consolidation loans with competitive rates and minimum fees. These can be used to consolidate credit card debt, which makes it more manageable in times of economic hardship.
The Bottom Line
Debt deferral can be a useful tool for those who find themselves unable to make their required monthly payments. As a response to the COVID-19 pandemic, many lenders have decided to grant debt deferral to individuals who have lost their job or have otherwise been financially impacted by the virus.
For individuals who have federally backed loans, the CARES act granted payment deferral for a variety of different loans.