If you find yourself not able to make a payment in your car loan, deferring your payment for one or more months can purchase you some temporary space, however it will come at a cost.
How Does Deferring an automobile Payment Work?
Under a car loan deferment, the lending company agrees to help you to pay a lower payment or no payment at all for any month—or two, or three, but most likely not considerably longer than that—with the expectation that you'll be able to resume your family payment schedule following the deferment ends.
Not all auto lenders allow deferments, and those that will have different procedures for requesting them. A deferment option is built into your loan agreement (in which case you might see a “skip a payment” option on the webpage where you make your payments or a “skip payment” slip inside your payment coupon book). Other lenders require you to submit a written request, known as a hardship letter, in which you explain the reason why you require the deferment so when you'll resume your family payments.
Along with the hardship letter, your lender may request additional financial details (similar to the information they probably required whenever you got the loan), plus they may also take a look at credit rating and credit report. In case your credit score has declined significantly because you got your vehicle loan, or if your income or assets have dropped, the lender might decline to give you a deferment. When the lender agrees towards the deferment, it'll issue a forbearance deal for you to sign—essentially a contract indicating when you will resume your family payments, specifying any fees or penalties you will be charged included in the arrangement.
A deferment may allow you to skip your payment altogether, or it might require a reduced payment consisting only of the interest part of the next scheduled payment. Either way, any skipped or reduced payments will be added to the end of your repayment period, and interest will continue to accrue around the loan for all those extra months, so that you will need to pay significantly more than the amount of each deferred payment before your loan is repaid. In addition, you'll likely be charged a charge for every skipped payment, so a deferment is anything but a free pass.
When Will it Make Sense to Defer a Payment?
Deferring one or two car payments is sensible if you have experienced an emergency expense or temporary reduction in income that you know will be remedied inside a short time—for instance, if you have a lull between the end of 1 job and the oncoming of another. If you seriously doubt you can get the payments back in line following a month or two, you can use deferment to buy a while, but you'd probably be advised to use that interval to think about getting a less expensive ride.
If you can't get a forbearance agreement out of your auto lender, or you realize you won't be able to resume your regular payment schedule after your authorized deferment period ends, consider selling the car. If you're able to have more for that car than you owe on the loan, you might be in a position to put the surplus in the sale toward a more affordable vehicle (or perhaps a ridesharing service).
Does a Car Loan Deferment Hurt Your Credit?
If you defer payment(s) using the lender's permission, either by exercising an option built into the borrowed funds agreement or by arranging a forbearance agreement, you'll be considered “paying as agreed” with regards to the loan. Your credit report won't reflect any delinquency consequently, and the deferment will not adversely affect your credit scores.
If you're in a situation where you're having trouble paying your car payment, take care that you don't miss any other bill payments, because that certainly might have a negative effect on your credit scores.
Alternatives to Car Payment Deferment
Refinancing. If your income is steady and you really are finding your car payment too large to handle each month, one option to consider is refinancing your car loan—essentially getting a new loan with smaller monthly payments. You'll likely only be able to perform therefore if the vehicle has retained most of its value, and your credit has remained as strong as it was whenever you took out the loan (or become stronger). Refinancing the loan to get smaller monthly obligations will more often than not mean extending the payment term on the loan, adding to the overall quantity of payments and also to the total cost from the loan. That could mean significant extra cost for you, but as an alternative choice to missing payments or defaulting around the loan, it may be well worth it.
Getting another person to visualize the loan. This can be a long shot, because most auto loan agreements expressly forbid it, but a select few lenders may go along with you to assist arrange the transfer of the loan to a different person. Actually, this requires the lending company issuing a new loan to the transferee, therefore the person assuming payments should be ready to consider over payments a minimum of as large as those you're making and have credit as good or much better than yours to qualify for loan terms comparable to yours. If you want to follow this path and you've got a possible transferee in your mind, be sure you know their credit rating (and that it's similar to yours), and then contact the lending company before any funds trade hands to make sure you can proceed.
Voluntary surrender. Nobody wants it arrive at this, but if everything else fails, or maybe the car may be worth less than your debts onto it, you may have to consider turning it to the lender in a process known as voluntary surrender. This is essentially forfeiting the car prior to the lender repossesses it. Because a voluntary surrender is a failure to settle your car loan, it seems as a negative entry on your credit history and certain will lower your credit score. It's considered less derogatory to your credit than the usual repossession, but it's still something need to avoid if at all possible.
Car loan deferment isn't a perfect scenario, but under circumstances where you just need per month or a couple of relief to obtain your payments back on track, it can provide some welcome room to move.