Personal Loan Deferment Explained: Meaning, Process, and Key
Overview
Personal loan repayments are planned with the expectation of steady income. However, life can be unpredictable. Events like health issues, sudden job changes, or unexpected expenses can impact your ability to pay EMIs on time. In these situations, personal loan deferment can provide temporary financial relief by allowing you to pause repayments for a short period.
Before choosing this option, it's important to understand how deferment works, who can apply, and what effects it may have on your loan and credit profile.
The Concept of Personal Loans
A personal loan refers to a credit arrangement that requires no collateral. Personal loans can be taken for any number of purposes, such as medical expenditure, education, wedding expenses, vacations, renovations to homes, or financing existing debt. As it requires no collateral, the lender checks other parameters like job security, credit scores, and repayment ability.
Personal loans are repaid in fixed monthly instalments over a specific term. While this makes managing finances easier, financial difficulties can sometimes make repayment challenging.
What Does Loan Deferment Mean?
Loan deferment is an agreement between the lender and borrower to temporarily stop making EMI payments. This payment pause is allowed for a set period and is intended to assist borrowers facing short-term financial issues.
It's important to understand that deferment does not reduce or cancel the loan amount. You are still liable for repayment, and any deferred EMIs will be adjusted later in the loan schedule.
How Personal Loan Deferment Works
After a borrower requests deferment, the lender evaluates the reason and repayment history. If approved, EMI payments are suspended for the agreed time frame. However, the following points usually apply:
Interest continues to accrue on the outstanding loan.
The loan term may be extended to accommodate deferred payments.
In some cases, future EMIs might be slightly higher. Administration or processing fees may apply.
Example:
If your EMI is ₹12,000 and the lender grants a two-month deferment, you won’t pay EMIs during those two months. However, interest will continue to accumulate. Once the deferment period concludes, either your repayment term will be extended, or your EMI amount will be adjusted.
Who Can Apply for a Loan Deferment?
Loan deferment approval is not guaranteed and depends on the lender's discretion. Common factors considered include:
A valid reason for temporary financial hardship
A strong repayment record before the request
The type of personal loan and the lender's specific policies
The expected repayment capability after deferment
Borrowers who have consistently paid EMIs on time are more likely to receive approval.
Deferment Terms That Are About Average
Full EMI Break
Both principal and interest payments are due in arrears. Interest continues to accumulate and is added to the loan amount.
Interest-Only Payment
During the deferment stage, the borrower must pay only the interest, which has a smaller impact on the total amount owed.
Special or Subsidised Deferment
In certain situations or under specific schemes, interest may be waived during the deferment period.
Advantages and Disadvantages
Benefits
Provides temporary financial assistance
Helps avoid missed payments and fees
Allows for better cash flow management
Disadvantages
Increases the overall interest payable
Extends the loan repayment period
May affect credit reports based on reporting criteria
Circumstances When Deferment Applies
Loan deferment is most helpful during temporary financial stress with a foreseeable recovery. It is not suitable for long-term financial problems. If you face ongoing financial difficulties, consider other options like loan restructuring or balance transfers.
Alternatives To Keep In Mind
Before deciding on deferment, borrowers can also consider the following:
Loan Rescheduling: Lowering EMI by extending the term
Loan Balance Transfer: Switching the loan to a lender with a lower interest rate
Utilising Emergency Savings: Paying EMIs to avoid extra interest charges
Effect on Credit Score
The impact of loan deferment on your credit score depends on how the lender reports it to the credit bureau. While deferment generally has a lesser negative effect on credit scores compared to missed payments, frequent deferred payments can signal ongoing financial difficulties. It’s crucial to verify the conditions before proceeding with loan deferment.
Conclusion
Personal loan deferment can be a helpful option during tough times. While it serves as an emergency solution, it increases the repayment amount in the long run. Exercise caution when applying for this option. If you are looking for personal loan products that match your repayment capacity and needs, Samridhya offers flexible loan choices designed to support responsible borrowing.
FAQ
Who can apply for a deferment?
Borrowers facing genuine short-term financial issues who have a good repayment history.
Does Interest Accrue During Deferment?
Yes, in most cases, interest continues to accumulate.
Will my EMI payments be affected by deferment?
The EMIs will either increase, or the repayment period will be extended.
Is loan deferment an automatic process?
No, it is subject to lender approval.
Does deferment impact credit score?
Yes, it may have a slight effect, but it's better than not repaying the EMIs.
What is the length of the deferment?
Typically, deferments range from 1 to 6 months, as determined by the lender.
Are there any charges for deferment?
Some lenders may impose a processing fee.
Can I request a deferment more than once?
Possibly; however, multiple requests may lower approval chances.
Is Deferment Preferable to Default?
Yes, deferment is always a better option than defaulting on a loan.
