A loan deferral is basically a period of time in which a borrower is allowed to withhold loan payments. This is often allowed in a situation in which some type of unforeseen situation has made repayment difficult or impossible. While loans are not forgiven in deferral, it can allow a borrower breathing room to avoid default. A loan deferral is typically issued for a set period of time or for as long as a certain condition is met, depending on the terms of the deferment.
The overall purpose of a loan deferral is to allow a borrower to go a certain period of time without making payments on a loan. This can be issued for a wide range of reasons including illness or unemployment, and is often up to a lender to approve or refuse. For certain loans, however, such as student loans, there are typically certain conditions in which a loan deferral is always allowed. The first few months after graduation, for example, payment on a loan is typically deferred to allow the student to get out of school and find work.
There are typically certain conditions in which a loan deferral is issued to a borrower. Unemployment or economic hardship can be situations in which a borrower is not making sufficient funds to be able to pay back on a loan. Rather than pushing the borrower, a loaning agency can issue a deferment that allows the borrower to get into a better situation before making payments once again.
Student loans typically have a number of conditions in which students can receive a loan deferral. If a student begins taking classes again, usually half or full time, then he or she can be eligible for a deferral as long as the student is in school. Performing national service of some kind, such as military enlistment, can also be grounds for a loan deferral, though this depends on the lender.
A loan deferral is not intended to be permanent, however, and is often restricted to a certain period of time, such as up to one year. During this time, loans often continue to accrue interest, which means that once the deferment is over, the loan is typically larger than it was before. This can be offset by the potential for the borrower to be in a much more stable position in which to continue make payments on the loan.