Take Advantage of Deferment to Pay Principal

[0errant]

Hi All!

My CU is once again offering deferments. It got me thinking, would it make sense to take advantage of these to pay down principal? I'm thinking that if I continued making my normal payments while deferred, it wouldn't impact my credit score and would go straight to principal. What do you think? Does this sound like a solid plan or am I missing something?

[dragontears]

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@0errant wrote:

Hi All!

My CU is once again offering deferments. It got me thinking, would it make sense to take advantage of these to pay down principal? I'm thinking that if I continued making my normal payments while deferred, it wouldn't impact my credit score and would go straight to principal. What do you think? Does this sound like a solid plan or am I missing something?

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Have you read the fine print on the deferrment? Most lenders will not stop interest accrual so making regular payments during deferrment might be the exact same as making payments without deferrment; i.e. your payments are first applied to interest and fees with the remaining going to principal. 

[mgs2010]

most loans are simple interest loans, meaning that the interest accrues every day. Whenever a CU or bank/any lender offers you a deferrment, it's almost always to their advantage and not yours. For them, they get to collect more interest while your loan sits during the timeframe you have it deferred for. So, unfortunately, even if you make payments while the loan is in deferment, it's kind of like a wash because you didn't really use the deferment - you applied the deferment to skip payments and then paid anyway. You won't come out any further ahead than where you're at right now, if that makes sense. 

[SoCalGardener]

I think I misunderstood what the offer was, so I'm deleting my reply!

[0errant]

It is an interest free deferment.

[SoCalGardener]

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@0errant wrote:

It is an interest free deferment.

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Unless I'm just totally missing something, I don't see how your plan to make payments as usual can be a bad thing. One of my cards offers deferred interest for 6 months on purchases >$300; there's nothing to activate or accept, it's just automatic. I'm making use of that right now, rather than pay it off as I normally do (because of its ridiculously high APR). The way mine works is that interest is deferred for six months; if the balance is paid in full by the end of the six months, that's that. But if there's any balance left, then they tack on *all* of the accrued interest.

I suggest reading the offer's details thoroughly, making sure you plod through all of its fine print. Afterward, if you're still unsure about how it works, post again! Give us more details--what kind of account it is, who the bank/creditor is, the exact wording of the offer, etc.