What is the Meaning of Deferment? Important aspects and benefits

Updated on: 29 Jul 2024

Do you know the meaning of deferment? In banking, it is a type of agreement that allows you to delay the payment to avoid immediate financial strain. Many loans and investment options work on this principle to help you manage cash flow.

Read on to better understand the meaning of deferred payment and why it is a great option for borrowers.

What is a Deferred Payment?

The term deferment refers to the period during which the financial institution allows you to pause your payments for a specific period. This period varies from a few months to a year, depending on the agreement between both parties.

Remember, the loan continues to incur interest as usual. This option is ideal when you need immediate funds but cannot start the repayment immediately. You can also ask for a deferral once you start the repayment but it depends on your lender.

When Can You Choose Deferred Payment

Here’s how deferment applies to different types of loans and investment options.

Car Loan

Some car loan lenders allow you to opt for deferment to delay the initial payments. This is beneficial if you want time to arrange funds for the first instalment.

Home Loans

During any financial hardships, such as job loss or illness, you can postpone monthly mortgage payments for a specific period. Since home loans can add a financial burden to your budget, this option gives you temporary relief.

Insurance

When buying an insurance pension plan, you don’t receive payment until after a while. Since the payment happens at a future date, the deferral principle applies.

Student Loans

When applying for a student loan, you don’t have to pay the EMIs until after you’ve graduated or until you get a job. This option allows you to repay the loan without relying on your parents or guardians for financial security.

Benefits of Deferred Payment

Here are some advantages of deferment that you should know about.

It gives you sufficient time to arrange funds to ensure that you don’t miss any payments in future
It lowers the stress of repayment, especially during financially challenging times
It helps you protect your credit score, as insufficient funds increase the chances of default
It allows you to buy products such as a car or a home, even if you don’t currently hold the repayment capacity
It allows you to avoid selling any valuable assets to get access to funds
It does not have any negative impact on your credit score as lenders have agreed upon such an arrangement

While the pros are many, here are some limitations that you should also know about:

The interest continues to add to your principal amount during this period
The higher principal amount and added interest can increase your tenure
The eligibility criteria are very strict to opt for a deferred period
Missing any payment in the future will damage your credit score

Knowing all its perks and drawbacks, you can opt for a loan that provides you with flexible lending terms that fit your budget. Fibe Instant Cash Loan is one such option that aims to make borrowing comfortable.

We offer instant loans of up to ₹5 lakhs with affordable interest rates. You can easily repay the loan with up to 36 months of tenure, with the option to foreclose the loan without penalties or additional charges.

In addition, enjoy a streamlined digital application process with minimum documentation, rapid approval, and quick disbursement. Download our Personal Loan App from the Google Play Store or App Store, or visit our website to get started on your application!

FAQs on Deferred Payment

What is the meaning of EMI deferment?

It is a period between the loan approval and the first EMI date pre-approved by the lender. You don’t have to pay any EMI during this period, but the loan amount continues to attract interest. This leads to an increase in the tenure and outstanding balance. You can also request a deferral after you begin the repayment.

Is loan deferment good?

Yes, if you are looking for a short-term solution to get your finances in order before making the loan repayment. However, it is important to consider that the loan will attract interest during this period. So, you need to ensure that the future payments will not strain your finances.