Understanding the Difference Between Deferment and Grace Period

You might have heard about the grace and deferment period if you ever acquired a loan. At first, these two seem to be the same. However, there’s a huge difference between these two periods lenders offer to their borrowers.

Understanding the difference can help you decide which is best for you once you face financial difficulties and can’t pay your loan obligation on time. So, let’s talk about what grace and deferment periods are, how they work, and pinpoint their difference. This way, you’ll better understand what offer is available and the right option for your financial situation.

Understanding Grace Period

A grace period is a specific time after your loan due date, which the lender will give you. This period allows you to pay your loan after the due date without penalty. Whether you’re taking out a cash advance or subprime personal loans, the number of days that will be given to you as a grace period depends on the lender.

Usually, grace periods that are given to the borrower amount to at least 15 days. That’s why when you apply for a loan, you must discuss your grace period with your lender. It’s to know how many days you have after the due date to settle your account without worrying about penalties.

Aside from knowing your loan’s grace period, you must also read your contract carefully to understand the consequences you’ll need to face when you fail to pay your payments before the given period ends.

How Grace Period Works

You already know that this period is given to borrowers to allow payment without penalty after the due date for a short period. It lets you pay your loan payment after the due date without leaving a negative mark on your credit report.

This period after the due date is crucial in your loan agreement. So, always remember to check your contract or discuss this with your lender. There will be times that you’ll face financial trouble that hinders you from paying your loan payment.

And a grace period is a huge help during these trying times to let you settle your obligations without additional payment for penalties.

Understanding Deferment

Loan deferment is an option made available to borrowers having difficulty paying for their existing loans. It’s a great tool that you can use to get through financial hardships. It lets you put your loan payments on hold for a longer period.

Many lenders are willing to offer you a loan deferment. However, their methods might look different as they will be based on the type of loan you applied for and your lender’s criteria.

How Loan Deferment Period Works

In general, a loan deferment period is a specific time when your loan is put on pause. You won’t need to pay for your monthly loan obligation during this period. This period usually lasts for a month or several years, depending on the lender’s offer, your financial situation, and the type of loan you acquired.

However, keep in mind that interest will still accrue on your loan during the deferment period. You should also expect your loan term to be extended since you’re pausing your loan repayment. The extension will depend on the length of your deferment period. The longer your deferment period, the longer your loan term will be extended.

Sometimes, deferment is used interchangeably with forbearance, as both work the same but will depend on the type of loan you acquired and your circumstances.

What Loans Are Eligible For Grace and Deferment Period

Both grace and deferment periods can be offered to you if you acquired any installment loans such as personal loans, auto loans, etc., and also with credit cards. As you can see, both of these periods are typically offered in most types of loans available.

These periods are created to assist and protect borrowers during the financial crisis. That’s why expect your loan to have a built-in grace period or be eligible for a deferment period.

The Difference of Grace And Deferment Periods

The most obvious difference between these two periods is the length of the time given. A grace period lasts only a few days, while a deferment period could last a few years. Another difference you need to note is the process of acquiring these periods.

A grace period is usually a built-in option on your loan. On the other hand, a deferment is an option where you’ll need to apply. Documentation will be required when you apply for a deferment period for your loan.

Lastly, deferment doesn’t stop your interest rate from accumulating throughout the deferment period. But with a grace period, interest may not accrue depending on the term of the loan acquired.


Although, at first, both grace and deferment periods might have a similar objective, which is to give borrowers time to settle their debt obligation even during a financial crisis, there are still so many differences between these two.

It’s best that you understand what these two periods are to have a better gauge of what is the best option for you in case you come into a situation where you’ll need to rely on either grace or deferment period.