Full vs. Interest-Only Deferment
By Rachel Seitz
You’ve just started school and are excited to really get going on the path to reach your career goals. You’ve even taken out a student loan to help with tuition. One thing you’ll want to note, though, is whether or not payments are fully deferred. At Climb, our loans may have either no deferment or interest-only deferment. How does this differ from full deferment, and what impact do these options have on your loan? Below, we’ve got an explainer of full vs. interest-only (IO) deferment
Full vs. Interest-Only Deferment Comparison*
|Loan Amount||Interest Rate||IO Months||Full Repayment Months||Monthly IO Payment||Full Monthly Payments||Total Payments||Difference|
|Fully Deferred Loan||$15,000||10%||0||60||$0.00||$350.58||$21,034.80||+$1,162.20|
Example only; actual amount owed would depend on the specific facts and circumstances of the loan that you take out.
When a loan has full deferment, no payments are owed until after the student borrower finishes their program. This way, they don’t have to worry about making payments while they’re in class. However, just because no payments are due doesn’t mean every part of the loan is put on pause. Even in full deferment, interest is accruing each month and being added onto your total loan amount.
Many people don’t realize that as soon as your funds are sent, interest begins to build up, regardless of when your repayment period begins. So it can come as a shock when, if your loan is fully deferred until after you graduate, you’re faced with a much higher loan amount than you originally took out.
IO deferment, on the other hand, involves making reduced, interest-only payments during the initial months after loan funds are disbursed—like when you’re still in school or looking for a job.
Since new interest is being added, it can be very beneficial to make those interest payments while you’re in class—your overall balance will be kept down, and you won’t have to deal with a higher loan amount than you were anticipating while transitioning from your program into a job search. That’s why most of our loans at Climb Credit come with interest-only deferment. We want to help our borrowers finish their program in the best financial position possible!
Want more information about interest rates and loan payments? Check out these additional resources on:
*Example given includes 6 months of interest-only payments and 60 months of principal and interest payments. Terms vary by program. Interest rates start at 6.50%. Actual interest rates may vary based on a number of factors. An annual percentage rate (APR) is the annual rate charged for borrowing and is expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. APRs on loans range from 0.35-18.50%. The example given does not include an origination fee. However, the APR of a Climb loan does include a 5% origination fee.