Have you run into financial hardship and are afraid that you won't be able to pay your loan for a few months? Rather than miss a payment and have it count against your credit score, you should request what's called a payment deferment. Here's how deferments work and how you can get one.

How does a loan payment deferment work?

A loan payment deferment is when you and the lender mutually agree to pause making payments. This is only a temporary freeze, and the payments will eventually resume once the deferment period ends (generally after a few months).

Even though this causes a loss of income for the lender, many recognize that hardships happen and are willing to work with borrowers. This is a much more amicable option than missing a payment because it defines clear stop and restart dates for payments. It's also a cheaper option for the lender than taking more drastic measures such as turning the account over to collections.

The good news is that your credit score should not be affected. Because the lender has agreed to freeze payments, they're not technically late or unpaid. The bad news is that in most deferment arrangements, the lender may charge a fee and interest on the loan may still accrue. That means you'll most likely owe more to the lender than when the deferment began.

When is a loan deferment the right choice?

Borrowers who have temporarily fallen behind on payments or experienced a significant hit to their financial situation (such as an unexpected job loss) would be good candidates for loan deferment. However, if the problem with money is larger and delaying the payments will only prolong the inevitable, then other options such as loan consolidation or credit counseling might be better alternatives.

How to get a payment deferment

If you're thinking that a loan deferment might be the right solution for your current financial situation, here's what you can do:

Review your budget

The first thing you'll need to understand is how long you need the deferment to last. Could you be back on track in three or six months? Review your budget and estimate how long it will take to get back on your feet so that you'll know how long to ask for.

Call the lender and request a deferment

The next step is to reach out to the lender directly. Call their customer service and ask to speak to someone about a deferment. Politely explain your situation to the representative.

The lender may ask detailed questions about your income, savings, and other debts. Remember that they have an agenda to be repaid as soon as possible and so they're not going to grant a deferment without making sure that you truly need one.

Ask about any fees or limits

While speaking to the customer representative, be sure to inquire about any fees and whether interest will continue to accrue. Also, ask if there's a limit to the number of deferments you can take.

Sign any required documentation

To make the payment deferment official, the lender may send you documentation to e-sign. If so, carefully review it to ensure that everything that was discussed has been recorded correctly. Be sure to also save this document for future reference.

Prepare for when the payment deferment ends

With the deferment officially in place, don't allow history to repeat itself. Take this time to get your finances in order, prioritize your budget, and develop a viable plan for how you will be able to confidently make those payments once they're scheduled to resume.

The bottom line

Rather than miss a payment, contact your lender and request a deferment instead. If the lender agrees, this could be a mutual benefit that will allow you to temporarily freeze your loan payments, avoid taking a hit on your credit score, and get back on your feet.

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