Bad news about money rarely comes around without a warning. When a person loses their job, gets a medical emergency or an income drop the EMI comes as a big hurdle to be paid. In such a case, a personal loan deferment (or EMI moratorium) is a structured arrangement that allows you to temporarily stop the repayment of a personal loan without defaulting on the loan. To make a decision, it is important to understand the workings behind it, who is eligible, and the long-term consequences.
What Is Personal Loan Deferment?
Under a personal loan deferment, a borrower and a lender agree to postpone payment of the EMI on a specific loan for a specific time. It is NOT a dues waiver, the unpaid installments are NOT eliminated. Rather they are pushed to the end of the tenure of the loan or into revised future EMIs. The main difference is that a credit report will show a deferment if the lender approves it, but will not show a missed payment. This will not automatically hurt your CIBIL score.
Defers became more popular in India during the RBI-imposed moratorium on EMI payments in 2020 during the Covid-19 pandemic. In addition to any general rules, deferment is generally considered on a case-by-case basis, depending on the lender’s discretion.
How Does Personal Loan EMI Deferment Work?
In this time frame, however, the interest rate on the still-pending principal does not freeze. These arrears of interest are then either due and added to the outstanding principal, or are distributed amongst the new EMIs once the deferment period is over.
For instance, Priya has a personal loan of ₹5 lakh whose rate of interest is 14% per annum for a period of 24 months. She can pay approximately ₹24,000 as her EMI. She asks for a deferment for three months because of a medical emergency. In these three months, the interest on this amount comes to approximately ₹17,500. This will add to her principal and her new EMIs after the deferment period will be slightly higher or the term of her loan will be longer by a couple of months.
| Aspect | During Deferment | After Deferment |
| EMI payment | Paused | Resumes (revised) |
| Interest accrual | Continues | Added to principal |
| Loan tenure | Unchanged | Extended |
| Credit score impact | None (if approved) | None (if compliant) |
Personal Loan Deferment Eligibility Criteria:
Deferment is not offered on a case-by-case basis. Each loan application will be considered on its own merits and the following would typically be considered:
- Evidence of true financial need (medical report, termination letter, income disruption statement, etc.).
- An adequate record of repayment – lenders will not consider deferments for borrowers with a poor record of repayments.
- The loan needs to be a type the lender is able to offer, which will not necessarily be all personal loan variations.
- The request has to be made prior to the EMI, not after the default has been made.
- Personal loan deferment has its pros and cons.
Pros And Cons Of Personal Loan Deferment
| Advantages | Disadvantages |
| Immediate cash flow relief | Interest keeps accumulating |
| No credit score damage if approved | Total repayment amount increases |
| Buys time to stabilise finances | Loan tenure extends |
| Avoids default and penalties | Not guaranteed – subject to lender approval |
Alternatives To Personal Loan Deferment
It’s important to consider if any other solutions are more cost effective in the long run before choosing deferment:
Loan restructuring: Some banks might be willing to lower the EMI amount permanently in conjunction with increasing the tenure, which means the interest doesn’t accumulate in the moratorium period.
Partial Prepayment: If you have saved up some money or liquid assets, these can be used to pay the principal in part so that before hardship really hits, you can reduce the amount outstanding, thereby lowering the EMI.
Balance transfer: If you can find a lender that gives you a better interest rate, you can take your loan with you to that lender, which means you won’t stop repayments and will save money each month.
Personal overdraft facility: In the case of paid employees, certain banks provide an overdraft, against salary, which can be utilized for the EMIs during the lean period.
Key Things To Keep In Mind Before Opting For Loan Deferment
While deferment will provide some short term relief, it will not be a low-cost option. There are a few things to consider before making a request:
- Make sure you always contact your lender before you miss an EMI as it will increase the likelihood of an approval and ensure that your credit record remains clean.
- Request your lender to send you a letter of the new terms and conditions, indicating the new tenure, revised EMI and the total amount of interest that needs to be paid, compare these to the original terms to understand the true cost of the loan.
- Don’t consider deferment a routine choice. The more you ask, the more unstable you appear to the lender and the more that may impact your relationship with them.
Conclusion
If the hardship is likely to last, think about applying for a formal restructuring of your loan, as this may provide a more viable option for the future.
Used wisely and with complete understanding of its implications, personal loan deferment will be a beneficial tool in a true financial crisis. The answer is to view it as a ‘bridge’ rather than a permanent solution and to get back on to normal repayments as soon as possible.
FAQs
Can I get a deferment on a personal loan?
Yes, you can often get a deferment on a personal loan if you are facing temporary financial hardship, such as job loss or a medical emergency. This arrangement allows you to pause payments for a set period, typically 3 to 6 months, but it requires lender approval, often involves accruing interest, and may extend your loan term.
Who is eligible for loan deferment?
Loan deferment is typically available to borrowers experiencing temporary financial hardship, such as unemployment, medical emergencies, or active-duty military service. It allows for a temporary pause in principal and interest payments, commonly for student loans, personal loans, or mortgages. Eligibility is usually determined by lenders and requires proof of hardship.
Is it possible to pause personal loan payments?
Yes, it is possible to pause personal loan payments through a loan deferment or moratorium period. Lenders typically allow this for 3 – 6 months during financial hardships (e.g., job loss, medical emergencies). While payments stop temporarily, interest usually continues to accrue, increasing the total cost of the loan.
Disclaimer: The information provided on this website is for general informational purposes only and should not be considered financial or legal advice. Please consult with a qualified financial advisor before making any decisions.
