For instances where the Interest or the principal of a loan doesn’t need to be repaid, that is referred to as the deferment period. Whether you’ve heard about it or not, this article will discuss everything you know about it.
Why Do Loans Have Deferment Periods?
Lenders want to motivate new borrowers and keep them in good economic standing. Deferment periods are one of the ways that lenders can do both.
How Long Is the Deferment Period?
The length of the loan deferment period varies from one borrower to another. For example, student borrower deferment typically lasts for three years. The same period applies to the deferment of employer-student loans.
What Impact Does the Deferment Period Have on Your Debt Ratios?
The impact of the deferment period on your debt ratios depends on the nature of your loan. The more the debt and the longer the payment is deferred, the more the deferment period contributes to the debt ratio. The impact of the loan deferment period is unlikely to make a big difference in your overall financial picture.
Tips on How to Cope With a Deferment Period
For many people, paying a loan is a challenging task. Deferment periods provide borrowers with a reprieve from debt repayment. Here are some tips that can help maximize this period.
1. Stay in Financial Shape
Just because you have been granted a deferment period does not mean that you are in the clear. Your lender can revoke the period at any time. Even after the period ends, you still have to make payments. Make sure that you have some money saved to continue to make the payments on time.
2. Pay Deferment Loan Principal
A deferment period does not mean you can stop paying the principal, especially if your lender does not allow it. The principal and interest you have paid will be capitalized if you do not make a payment during the deferment period. Therefore, it is best to make a principal payment every month if your lender decides to introduce a deferment period.
3. Use the Period Wisely
Deferment periods are usually granted so that borrowers can catch up on their payments. However, some people use this to postpone their loan payments. If you use the loan deferment period to make up for the lost time, you might end up getting another deferment period. Be wise with how you use the deferment period.
4. Refinance Loans
If you are concerned about the impact of the loan deferment period on your debt ratios, you might want to consider refinancing your loans. Refinancing will allow you to pay off your loan debt at a lower interest rate. You may also qualify for tax benefits, such as deducting your interest payments.
A deferment period is a reprieve from payments for a specific period. When the period is utilized wisely, it can be a great way to help you get on the road to financial freedom. Use this article as a guide on how you can maximize the deferment period.
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