Debt obligations cannot always be addressed when the time comes to repay a financial obligation. It is sometimes possible to pursue a deferred payment strategy, which postpones the repayment of a loan. On the plus side, this gives the debtor additional time to improve financial conditions without a threat of default or the application of government tax liens. All of the features of a deferred payment are not ideal as interest payments continue to accrue and the borrower may be subject to additional fees. Business commerce also presents an opportunity for deferred payments, although some party must bear the risk of potential lost income.
When a student takes out a college loan, such as government-sponsored financial aid, the individual might have every intention of repaying the debt upon graduation. There are factors that can interfere with this plan that might not allow the immediate repayment of a college loan. A lending facility or federal government agency might allow a deferred payment plan for a period of time due to extenuating circumstances. Meanwhile, a student borrower can focus on earning income so that payments can be started or resumed before the deferment period ends. The longer that payments are deferred, the higher the interest payments are likely to be because interest continues to be applied even as payments are missed.
Certain loans are designed to be deferred intentionally rather than merely presented as an option. Home owners, for instance, might qualify for a home improvement loan that does not need to be repaid for a period of months. A benefit is that a borrower can have repairs and upgrades done and furnish a home without having to make immediate payments. The risk for the lender is the chance that a borrower may not be in a position to begin making payments when the deferment ends.
International trade may also present deferred payment options to importers and exporters of goods. When a business sells goods to a company in another nation, especially early in the relationship, there are risks associated with the unknowns that are involved. Financial institutions can serve as intermediaries and provide some protection against the financial risks. For instance, a bank might extend a deferred payment option to an importing entity on behalf of the exporter for a number of days. In the event that the importer is not able to make the scheduled payments as planned, the bank becomes liable for the amount that was credited.