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The major difference between a grace period and a deferment is when a borrower qualifies for each delayed payment option on a given loan. A grace period is a time period automatically granted on a loan during which the borrower does not have to pay the issuer any monies toward the loan, and the borrower does not incur any penalties for not paying.
Payments may be made during both grace periods and deferment but are not required. Paying student loans during grace periods and deferments reduces capitalizing and compounding interest scenarios. Paying other loans during deferments also reduces the balloon at the end of those loans.
Key Takeaways
Both grace periods and deferments are periods of time during which a borrower does not have to pay a lender money toward a loan.
Grace periods tend to be built into loan terms, whereas most deferments require application and documentation.
Deferring loan payments does not generally stop interest from accumulating, so it can be quite impactful on the loan interest owed, depending on the loan's terms.
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