Skyrocketing gas prices and car costs mean that mustering enough money to pay your car loan might be difficult. If your finances are getting increasingly tight, you can skip your car loan payments for a while. Here is everything you need to know about deferring car loan payments and what you should keep in mind!
Can you defer a car loan payment?
While the option to defer a car payment rest completely on your lender, it certainly will depend on two main factors. Firstly, you must be prompt with your current loan payments. Secondly, you shouldn’t have had a deferment recently or more than twice that financial year.
How many car payments can you skip?
Although it is up to your lender, you can defer not more than two payments per year. So, if you are in doubt as to whether you can defer a car payment more than once, it is possible with the lender’s agreement.
How to defer a car loan payment?
Deferring a car loan payment means skipping the monthly payment on your loan. If your lender permits, you might be able to postpone it entirely or let the lender lower the upcoming payment. The following methods are the two main ways you can defer car payments.
Skip the payment
While most lenders will allow this option, there might be fees associated with it. So, you should consider it carefully.
Hardship letter
This is another option for lenders to allow deferred car payments. In other words, you need to explain the reasons for the delay and the time you require to restart the regular payment. In addition, you should present the pay stubs and other related documents that you submitted during the loan application.
Similarly, your credit report and scores will also be reviewed before the lender agrees to defer the car payment.
Reasons to defer a car loan payment
You can choose to defer payment on a car loan when you feel that your income is going to be strained in the coming month. Some examples of such situations include:
- If you’re going through a financial emergency that has used up your monthly budget, like medical bills or house repairs.
- If you’re in between jobs and haven’t got sufficient savings to pay for the next payment.
- When you’ve had an injury or illness and are taking some time off, but in the process, you lose some income.
- When you’ve been furloughed and don’t know if you might have a stable source of income in the upcoming months.
Steps involved in deferring a payment
- Go through the website and find out the options available. For example, it might be given as “skip a payment” or “loan extension.”
- Draft a hardship letter, if needed, with the details, the amount you owe, and what you’ve paid to date, the reason for postponing the car payment, and when you can resume the payment.
- Provide the necessary details upon request from your lender.
- Agree upon a period after discussing it with the lender.
Remember that deferring your car loan payments does not mean that you are freed from the responsibility of paying them. The skipped payments will be clubbed with the remaining payoff amount, and the loan term will be extended till you finish paying off the principal and interest. You will likely pay more interest in the long run because of it.
Does deferring a car loan payment hurt your credit?
Deferring a car payment simply means pausing your payment for a certain period with the knowledge of your lender. Therefore, it doesn’t affect your credit score. However, based on the type of loan, interest may keep increasing, and you might pay more money in the long run. But you’ll be exempt from defaulting on your loan and paying late fees.
Seven alternatives to deferring your car loan payments
Refinance your auto loan
Auto loan refinancing can help you take out a new loan, pay off the old one, and get better terms and conditions, like a lower APR and lower monthly payments.
Lower your car loan payment
If you negotiate with the lender, they may be able to lower your amount to a level you can pay. However, if your lender has already sold your loan to another financial institution, this option may not work.
Pay off the loan faster
If you anticipate a fund crunch in the near future, you can choose certain ways to pay off the auto loan faster. Bi-weekly payments, excluding add-ons from monthly payments, paying more towards the principal, and paying high-interest loans first are some common ways to reduce debt quickly.
Change your payment due date
If your cash crunch is temporary, you can also ask the lender to change your payment due date to a more comfortable one. For example, you’ll be easily able to avoid skipping payments if your due date is near your payday.
Transfer your loan to someone else
Although this is a rare option, some lenders allow you to transfer your loan to a third party. However, the new borrower must be willing to take on your loan and have an acceptable credit score.
Sell the car and pay off the car loan
If it is possible, you can sell your car, which allows you to pay off a large amount of the loan quickly and get out of the bad auto loan. You may not be able to pay off the entire loan, but it will free up some finances easily.
Surrender the car before repossession
Allowing the lender to repossess the vehicle should be your last resort. The lender will take possession of the car, and your credit score can take a slight hit, but it’s better than involuntary possession.
Pros and cons of car loan deferment
Advantages
- It will give you time to avoid fees due to late payments.
- It will help you look for other options to close the loan early, like refinancing.
- It will save you from being classified as a defaulter and prevent repossession of the vehicle.
- It will allow you time to organize your finances better.
Drawbacks
- You will have to pay back the skipped loan payments later, as deferment is only a temporary pause.
- You will pay more in interest charges due to your loan term being extended.
- You might have to pay a fee for auto loan payment deferment.
Frequently asked questions
Should you apply for a car loan deferment?
If you absolutely cannot afford to continue your car loan payments in the next few months, it is always best to apply for deferment. If you skip a payment without informing your lender, it will not only affect your credit score but will also lead to default.
Can you defer a car loan payment for six months?
Most lenders allow car loan payment deferment for up to three months. Very few lenders allow you to skip payments for as long as six months. However, the lender could consider the option if you have a good credit score, a consistent payment history, and your current financial circumstances.
Do you have to pay back deferred payments?
Yes, skipping your car loan payments does not mean you do not pay it back. Deferment only means that you are excused from paying the amounts for a certain period – after which you must resume paying them. Additionally, your loan term will be extended to account for your skipped payments and the interest accrued on them.
How many months can you be behind on your car payment?
If you do not apply for deferment and skip payments, lenders will wait for around three months before moving to repossess. Since repossessing a vehicle involves costs to the lender, they may wait at least a month before taking action.
Is it okay to defer a car payment?
It is okay to defer a car payment if your lender allows you to and if you are certain that it won’t affect your credit score.
How do I ask for a car payment deferral?
You must contact your lender and then usually provide them with a hardship letter with the reasons for deferring the car payment and when you can resume it too.
Can I skip a car payment if I’m ahead?
Skipping payments is not advised, as you’ll have to pay an extra amount for your next installment.
Final thoughts
Refinancing is a good alternative if you are certain that you won’t be able to make the payments for the upcoming installments. Refinancing your current loan will offer you better, affordable rates and simplify monthly payments. However, if it is just a break you need, you can certainly defer the car payment and pay it when your lender asks.
