Quick answer
A deferred repayment is a loan instalment the lender agrees to push back to a later date. In business lending it usually means the first repayment starts weeks or months after settlement, or that scheduled payments pause for a set period. Interest normally keeps building in the meantime and is added to the balance, so deferring makes later repayments larger and raises the total cost in dollars.
Key points
- Deferral moves a repayment date; it doesn't forgive the money owed
- Interest usually accrues during the gap and is capitalised onto the balance
- Common in equipment finance, seasonal lending and hardship arrangements
- Ask for the total repayable with and without the deferral before you sign
A new coffee roaster takes about three months to install, commission and win wholesale accounts. Paying for it from the week it arrives means funding the loan out of savings. Agreeing to start repayments in month four lets the machine pay for itself. That, in short, is why deferred repayments exist.
What a deferral actually changes
Deferring a repayment changes when you pay, not whether you pay. The lender agrees in writing that one or more instalments will fall later than the standard schedule. It turns up in three common forms:
- Delayed first instalment. Written into the loan from the start. Equipment and asset finance often allow 30, 60 or 90 days before the first payment, and some agricultural loans line the first instalment up with harvest.
- Seasonal or skip payments. The repayment schedule is set up with lighter or skipped months each year, useful for tourism, farming and other businesses with predictable quiet periods.
- A pause on a running loan. Agreed after settlement because income has dropped. This is often called a payment holiday or hardship arrangement.
Where does the interest go in the meantime?
This is the part people underestimate. On nearly every loan, interest keeps accruing while repayments are deferred. At the end of the deferral the unpaid interest is usually capitalised, meaning it’s added to the balance, and you then pay interest on that interest for the rest of the term.
The effect is a little like an interest-only period where you don’t even pay the interest. The loan is bigger when repayments begin, and the remaining term is shorter unless the lender extends it. Either the instalments rise, the term lengthens, or both.
A worked example
A café borrows $120k over five years through equipment finance to fit out a second site. The lender offers two versions.
| Standard start | First payment deferred three months | |
|---|---|---|
| First repayment | Month one | Month four |
| Interest built up before repayments begin | Nil | About $2,600, added to the balance |
| Number of monthly repayments | 60 | 57 |
| Each repayment | Lower | Roughly 6% higher |
| Total repaid over the loan | Baseline | About $1,700 more |
Figures are illustrative; the actual numbers depend on the lender’s pricing. The point is the shape: three free months cost the café well over a thousand dollars and a heavier monthly bill afterwards. For a site that needs a quarter to build trade, that can be money well spent. For one that’s busy from opening day, it’s a cost with no benefit.
You can test the difference yourself by running both versions through our business loan repayment calculator, adding the capitalised interest to the loan amount for the deferred version.
If you’re weighing finance with a delayed start, a quick enquiry lets us tell you which lenders will actually write one.
Why lenders agree to it, and when they won’t
Lenders like deferrals that match a genuine cash flow pattern: a machine that needs commissioning, a crop that hasn’t been sold, a fit-out that isn’t trading yet. They’re wary of deferrals that look like a business struggling to service any debt at all. Expect questions about when income starts and what happens if it starts late.
On an existing loan, timing matters. Asking before a payment bounces keeps the conversation about planning. Asking after several dishonours turns it into a collections matter, and the options narrow.
Related terms
Deferral changes how a loan amortises: less principal is paid early, so the balance stays higher for longer. Compare it with a balloon payment, which pushes a lump sum to the end instead of delaying the start.
Need breathing room before repayments start?
Some purchases take time to earn their keep, and finance built around that is easier to live with. Tell us what you’re buying, when it should start paying its way and how much you need. The form takes roughly a minute, your credit file isn’t touched just for asking, and it goes to one person on our team rather than being sent out to a list of lenders. They’ll read it and phone you. Accurate figures about your turnover and timing help them find a lender that offers a delayed start first go.
Frequently asked questions
Is a deferred repayment the same as a payment holiday?
They overlap. A payment holiday usually describes a pause agreed after a loan is running, often because of hardship. A deferred repayment is the broader idea and also covers loans written from day one with a delayed first instalment, such as equipment finance where the machine needs a few months to start earning.
Does interest stop during a deferral?
Rarely. Most lenders keep charging interest and add it to the loan, which is called capitalising. Some equipment suppliers run promotions where the deferral is built into the price, but the cost is still there somewhere, so compare the total repayable.
Will a deferred repayment show on my credit file?
A deferral agreed with the lender before a payment is missed shouldn't be reported as a missed payment. Under hardship rules for consumer credit, an arrangement can be flagged on a personal credit file. Business lenders vary, so ask how they record it.
Can I ask for a deferral on a loan I already have?
Yes. Call the lender before a payment is missed, explain why income has dipped and when it will recover, and propose a specific period. Banks that follow the Banking Code of Practice have commitments to work with small business customers in financial difficulty.
Do online lenders offer deferred starts?
Short-term unsecured lenders with daily or weekly debits rarely build in a delayed start, because their loans are short and priced on quick repayment. Deferred starts are more common with equipment and asset finance, agricultural lenders and some property-secured loans.