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Deferment Agreement Example

Deferment Agreement Example: What It Is and How It Works

If you are dealing with a financial crisis, you may have heard of deferment agreements from lenders. A deferment agreement is a contract between a borrower and a lender that allows the borrower to temporarily postpone payments on a loan or other debt.

In a deferment agreement, the borrower and lender agree on a date when the borrower will resume making payments. During the deferment period, interest may still accrue on the loan, which the borrower will have to pay once the deferment period ends.

To better understand how a deferment agreement works, let`s consider an example. Suppose that John has a student loan with a balance of $20,000. He is currently experiencing financial hardship and cannot afford to make his monthly loan payments. John contacts his lender to discuss his options and learns about deferment agreements.

John`s lender agrees to a deferment period of six months, during which time he will not be required to make any loan payments. However, interest will continue to accrue on his loan balance during this time. The lender and John agree that after the deferment period ends, John will resume making his monthly loan payments and will also need to pay the accumulated interest.

Deferment agreements can be helpful in giving borrowers temporary relief from financial strain, but they should not be relied upon as a long-term solution. It`s important to keep in mind that deferment agreements do not forgive or cancel any of the borrower`s debts. Instead, they simply postpone payments until a later date.

If you are considering a deferment agreement, it`s essential to read and understand all of the terms and conditions of the agreement before signing. You should also consider speaking to a financial advisor or credit counselor to discuss other options that may better suit your financial situation.

In summary, a deferment agreement is a contract between a borrower and a lender that allows the borrower to postpone payments on a loan or other debt for a specified period of time. While they can be helpful in times of financial hardship, deferment agreements should not be relied upon as a long-term solution. As always, it`s vital to read and fully understand any agreement before signing it.