Deferment vs Forbearance
Taking out loans is a very common practice for many people who require a substantial amount of funds immediately but do not have the resources readily available for such funds. Individuals who take such loans are obliged to repay back the loan along with any interest payments. There are, however, many instances in which the individual who borrows funds may be unable to repay their loans during the short term. Such individuals may exercise their option of obtaining a deferment or forbearance so that may be temporarily relieved from their financial obligations.
What is Deferment?
A deferment is when an individual is given a period of release from repaying a loan. During this time, the borrower does not have to make any loan repayments which means that they will not be obligated to pay interest or repay the principal amount. Interest that is unpaid during the period will not accrue in a deferment and so the borrower who obtains a deferment on their loans has many benefits with no additional charges of penalties. However, taking out a deferment on a loan means that the borrower will have to keep repaying the loan balance for a longer period and will be in debt for an extended period. Deferment is also available only for a set period of time and the borrower must find a way to repay his debts once the relief period lapses.
What is Forbearance?
Forbearance is when the borrower will be excused from making loan repayments (principal payments) but will have to repay the interest on the loan. Even if, the borrower cannot pay the loan interest, this will be accrued at the end of the period, and the borrower will have to make the interest payment in one go. This is a significant disadvantage to a borrower since he will have to pay a substantial amount in interest by the end of the period.
Deferment vs Forbearance
Deferments and forbearances both act as temporary financial relief from loan repayments and are very common with student loans. The difference between the two is that when a deferment is given the borrower does not have to make any interest payments during the period of deferment, and in forbearance, the borrower must keep paying the loan interest or must repay the total loan interest for the period at the time the loan repayment is made.
Of the two, a deferment is more helpful to a borrower as it completely removes his financial responsibilities. In order to apply for deferment or forbearance the borrower must comply with certain criteria that include: being a student in a college/school, in financial difficulties, in the military, suffering from a disability, being enrolled in a rehab facility etc.
Difference Between Deferment and Forbearance
Summary:
• A deferment is when an individual is given a period of release from repaying a loan. During this time, the borrower does not have to make any loan repayments which means that they will not be obligated to pay interest or repay the principal amount.
• Forbearance is when the borrower will be excused from making loan repayments (principal payments) but will have to repay the interest on the loan.
• Of the two, a deferment is more helpful to a borrower as it completely removes his financial responsibilities.