A deferral fee is a financial charge that may be assessed by a creditor if a borrower defers a payment. This is not the same thing as a late fee, or an increased interest payment caused by allowing interest to accrue because of the missed payment. Regional regulations typically limit the circumstances in which such fees can be collected, and may place a ceiling on the maximum allowed amount. Borrowers considering a deferral request may want to check the terms of a loan to determine if they will be subject to additional charges.
When it is not possible to make a payment, a borrower can ask for a deferral. The creditor can determine whether to grant the request, allowing the borrower to skip a payment without penalties like a report to a credit agency. Some lenders may allow people to file for deferrals in multiple months or to temporarily suspend payments for six months to a year. Because this request is voluntary in nature, borrowers may be liable for some expenses in association with the deferral.
Creditors may charge a deferral fee for the convenience of skipping one or more payments if it is allowed by law. It may be a flat rate or it could be based on a percentage of the payment. If this is allowed by law, it is discussed in the terms of the loan, allowing borrowers to determine whether they might be charged a deferral fee, and how much money the lender may request. Also called a deferral charge, it is added to the borrower’s bill.
In addition to incurring a deferral fee, borrowers accrue interest when they ask for forgiveness on a payment. Because they don’t apply funds to the outstanding balance or any interest that has built up, the interest compounds and rolls over to the next payment. Missing a single month may not make a significant difference in terms of interest, but it can be an issue with a large loan and multiple deferred payments. A representative of the lender can provide more information about how much interest may build up.
Deferring payments also changes the end date of a loan, unless the borrower plans to make up with accelerated payments in the future. For financial planning, this can be an important consideration. The deferral fee is also not tax-deductible like interest payments on some loans, because it is treated as a voluntary expense.