Property Futures

Real Estate News, Reviews and Investment

Creative Finance: Deferred Payment

Article: advantages and disadvantages of deferred-payment loans.

A loan, rental contract or other agreement with a deferred-payment clause indicates that payment will start at a later date than the signing of the contract. Car loans are common examples – they may offer to defer the first payment for 6 or 12 months.

How to defer payments using creative financing

Creative financing- Deferred payments

After payments have begun, they will continue according to the agreement until the contract is terminated, for example when a debt is paid off. Deferred payment is available on many products, from furniture to second homes, but costs can be high so it is important to thoroughly evaluate the alternatives.

Deferring payment is a risk to the party that would be receiving payment as it is possible that the other party may not make payment on time or at all. For this reason, deferred payment tends to cost more than immediate payment.

Advantages of deferred payment loans

 

  • Ease cash flow problems
  • May be cheaper than a bridging loan

Deferring payment can be extremely beneficial, particularly in a situation where income on an investment is delayed. For example:

  • Rental property and investment property mortgages
Allowing the landlord time to do repairs and find a tenant before the first mortgage payment is due
  • New businesses or business expansions

Disadvantages of deferred payment loans

As payments are deferred, not canceled, there are costs to this service. Disadvantages include:

  • Overall payments typically higher
    • As a loan accrues interest during the deferral period
  • Interest rates may be higher
  • Fees to arrange such a loan may be high
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