deferment
A temporary postponement of loan payments granted by the lender.
Example
“During the deferment period on her subsidized loans interest did not accumulate.”
Memory Tip
DEFER — delay the payment. The debt waits for you.
Why It Matters
Deferment can provide crucial breathing room when you face temporary financial hardship, allowing you to avoid defaulting on your loan during tough times. Understanding deferment options helps you make informed decisions about managing debt and protecting your credit score when income is disrupted.
Common Misconception
Many people mistakenly believe that deferment means the debt disappears or that interest stops accumulating during the postponement period. In reality, interest often continues to accrue on deferred loans, meaning you may owe more money when payments resume than you did before the deferment began.
In Practice
A recent college graduate with a $25,000 student loan at 5 percent interest faces unemployment and requests a six-month deferment instead of missing payments. During those six months, approximately $625 in interest accumulates on the loan, so when payments resume, the total balance is closer to $25,625 rather than staying at $25,000.
Etymology
From Latin 'differre' meaning to delay — the obligation is delayed not cancelled.
Common Misspellings
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Related Terms
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See Also
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