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What are deferred repayments?
To defer repayments on a loan means to take a payment break at the start of the loan term, in other words you receive the loan amount but then do not have to start repaying the loan for an initial period – usually around 3 months.
Many lenders offer deferred repayments on unsecured loans, with the length of the repayment break varying from one lender to another.
Where offered, deferred repayments can be either an optional choice available to you when taking out the loan, or they can be mandatory and are a required part of the loan product.
There are both advantages and disadvantages to deferred repayments. You should bear in mind:
- Deferred payments can provide you with some breathing space between receiving the loan finance and beginning to repay the loan.
- Interest will continue to run on the loan throughout the deferred repayment period.
- Monthly repayments will be increased slightly with deferred repayments so that the loan is still repaid in the agreed timescale.
The pros and cons of deferred repayments
As you may have seen with many lenders that offer unsecured loans there is an option to defer repayments for a specified period. This period can vary from lender to lender, and you should remember that not all lenders offer deferred repayments. Other lenders may enforce mandatory deferred repayments.
Deferred repayments can work in one of two ways. Some lenders offer deferred repayments at the start of a loan, so you get a payment break of a specified period when you actually take out the loan, which means you don’t make repayments on the loan right away. Other lenders enable you to take a payment break at agreed times during the term of the loan – for instance you may be able to take a payment break once or twice in every twelve month period.
For many people the option to defer repayments offers additional breathing space, particularly if finances are a little tight but are likely to improve in the months to come. However, it is important to be aware of the consequences of deferring repayments as well as the benefits. Interest on your loan will continue to accrue even through the deferred repayment period, so you will not receive any break on the interest that you are charged on the loan.
Some lenders will still want you to repay the loan in full by the end of the agreed term, and this means that deferring your repayments will result in higher monthly repayments for the remainder of the term. In other cases, the lender may add the deferred repayment months onto the end of the loan, which means that you may end up paying the loan over a longer term.
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