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What Happens if I Defer a Car Payment?


Owning a car is key to getting around for work and fun, but it is also expensive. Even the most responsible car owners can find themselves facing an emergency that makes paying for your car impossible. According to TransUnion, 14% of car loans get some kind of financial accommodation plan. Putting off payments and racking up late fees, or even getting your car repossessed, is rarely your best option. It's usually better to ask for a deferment if you find yourself in an emergency that means you can't make your car payments.

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What Is a Deferment?

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Image via Unsplash by emkal.

Many auto loans include accommodations for deferments, which are pay periods where you skip some or all of your payments. This doesn't mean you don't still owe that money, just that you are allowed to push back paying that money until later. Deferments are used in emergencies when you either have an unexpected temporary drop in your income or you have had a sudden, unexpected cost. For example, if you were temporarily furloughed at work, or storm damage required emergency repairs on your home, those would be good times to request a deferment.

Deferments do not hurt your credit score. Unlike simply missing a payment or paying it late, a deferred payment counts as “paid according to agreement,” since you arranged it with your lender ahead of time. That's especially important if you're already in the kind of emergency that would call for a deferment.

How Do Car Loan Deferments Work?

Many auto loans include language spelling out the situations in which the lender will consider granting a deferment, and describes the process for requesting one. Not all lenders allow for deferments and even those that do rarely allow you to defer more than two or three payments. A deferment is meant to be a temporary solution to a short-term emergency.

Some lenders have deferment built into their system. When you go to pay online, you may see an option to “skip payment.” In other situations, you may need to send your lender a hardship letter. This explains the nature of your emergency, why you are requesting the deferment, and when you expect you'll be able to resume your normal payments.

Lenders may also request more financial information when you ask for a deferment. This can look a lot like what you provided when you initially applied for the loan, including proof of income, your credit score, and your credit history. If your finances and credit have gotten significantly worse since you originally took out the loan, the lender may decide not to grant your deferment.

If the lender does grant a deferment, you'll probably need to sign a forbearance agreement. A forbearance agreement is a contract granting you the deferment and guaranteeing you'll resume payments when the deferment period is over. Generally, the deferred pay periods will be added to the term of the loan. So if you defer two payments on a 36-month loan, the term of the loan will extend to 38 months from the date you purchased your vehicle.

What Are Alternatives To Deferring Car Payments?

Not all lenders will grant you deferments, and not all situations fit a deferment. If your emergency is very short-term, you can ask your lender to push back your pay period. If your financial trouble is likely to last more than a couple of months, or your lender won't grant you a deferment, there are a few other options to consider:

  • Refinancing: Refinancing means taking on a new loan for however much you still owe on the vehicle. If you have paid down the principal on your original loan, this will probably result in smaller payments over a longer period of time. This is generally only worthwhile if your car has retained most of its value and is only an option if you have maintained good credit. Refinancing often means you will end up paying more money in the long term due to interest payments and fees, but it can make the individual payments more manageable.
  • Transferring Your Loan: In some cases, you may be able to transfer your loan to someone else who will go to your lender and get a new loan from them, which they then use to buy off your loan and take on the payments themselves. Many loans expressly forbid this option, so check the terms of your loan before you start planning for this.
  • Selling Your Vehicle: You can choose to sell the vehicle outright. You need to make sure you sell the vehicle at a price that lets you pay off your loan. If you sell the vehicle for more than you owe, you can use the extra money to purchase a different vehicle at a lower price. This is often a smart move when you own an expensive vehicle that you can no longer afford. This doesn't have to be an alternative to deferment: You can apply for a deferment to get extra time to sell a vehicle you can no longer afford.
  • Surrendering Your Vehicle: You can voluntarily surrender your vehicle. This isn't ideal, but sometimes it can't be avoided. Essentially, you hand over the vehicle to your lender before they repossess it. This will hurt your credit score, since you aren't paying as you agreed to, but it generally is a less severe hit than if the lender has to outright repossess your car.

When Should I Consider Applying for a Deferment?

You should consider requesting a deferment if you are having a temporary financial emergency that will make it hard or impossible to make your regularly scheduled payments. A deferment will let you get back on your feet without hurting your credit score. It can also buy you time to make other arrangements to handle the costs of your auto loan.

If you think you need a deferment, visit our finance department and reach out as soon as possible so you can explore your options and get the deferment arranged before you miss a payment.