Can You Pause a Car Payment? Here Are Your Options

Unforeseen financial challenges can make managing car payments difficult, leading many individuals to explore options for temporary relief. While the concept of pausing car payments might seem straightforward, it is not a guaranteed right and depends heavily on the specific lender and individual circumstances. Proactive communication with your loan servicer is important when facing payment difficulties.

Understanding Payment Relief Options

Lenders may offer various payment relief options for car loans when borrowers experience financial hardship. One common option is deferment, which allows you to temporarily suspend one or more monthly payments. The missed payments are typically added to the end of the loan term, extending the overall repayment period. Interest typically continues to accrue during a deferment period, increasing the total cost of the loan over time.

Forbearance is a form of temporary relief where a lender agrees to accept reduced payments or no payments for a set period, often up to 12 months. While payments are paused or reduced, interest continues to accrue on the loan balance. The missed payments or accrued interest might be due as a lump sum at the end of the forbearance period, or they could be added to the loan balance, leading to higher future payments or an extended loan term.

Loan extensions or modifications involve changing the original terms of the loan agreement. This could mean extending the loan term to lower monthly payments, effectively spreading the remaining balance over a longer period. Eligibility for these options varies and depends on the lender’s specific policies, the borrower’s payment history, and the documented reason for the financial hardship.

Requesting Payment Relief

When financial difficulties arise, proactively contacting your car loan lender is an important first step. Begin by identifying your loan servicer, which may not always be the original dealership. You can typically find their contact information on your loan statements or through their online portal.

Before initiating contact, gather all necessary information. This includes your loan account number, details of your financial hardship, and an estimate of how long you anticipate needing relief. Have documentation such as proof of income changes, medical bills, or other relevant financial statements ready to support your request.

Contact can be made via phone, through an online portal, or by submitting a written request. Lenders may offer options like changing your payment due date, temporary payment plans, or loan modifications. Clearly explain your situation and the specific type of relief you are seeking, such as a deferment or a loan extension.

Understand the lender’s specific requirements, as some may ask for a formal application or a hardship letter detailing your circumstances and when you expect to resume regular payments. Always document all communications, including dates, names of representatives, and any agreements made, and request any approved relief in writing.

Financial Effects of Payment Relief

While payment relief offers much-needed temporary respite, it carries financial consequences that increase the overall cost of the loan. Interest continues to accrue on the outstanding loan balance during a deferment or forbearance period. This means that even if you are not making payments, the total amount you owe is still growing.

When payments are paused, the loan term extends to accommodate the missed payments, leading to a longer period of repayment. For example, deferring two payments on a 60-month loan might extend the term to 62 months. This extension, combined with continued interest accrual, increases the total interest paid over the life of the loan, making the car more expensive.

A properly granted deferment or forbearance, when approved by your lender and adhered to, does not directly harm your credit score. Your account remains reported as current or “paying as agreed.” However, missing or making late payments before approval, or failing to adhere to the new agreement, can damage your credit score, as payment history accounts for a substantial portion of credit score calculations.

Other Strategies for Payment Difficulty

If direct payment relief isn’t feasible or sufficient, several other strategies can help manage car payment difficulties. Reviewing your budget can identify areas for cost reduction, such as adjusting discretionary spending. Financial experts suggest that car-related expenses, including loan payments, insurance, and fuel, should not exceed 15-20% of your monthly income.

Increasing income, even temporarily, through side jobs or selling unused items, can provide additional funds to meet obligations. Refinancing the loan can be an option if your financial situation or credit score has improved since the original loan was taken out. Refinancing can potentially lower monthly payments by securing a lower interest rate or extending the loan term, though a longer term will increase the total interest paid.

Selling the vehicle can be considered, especially if you are “upside down” on the loan, meaning you owe more than the car is worth. In such cases, you may need to pay the difference between the sale price and the loan balance out of pocket, or take out a personal loan for the negative equity. Voluntary repossession, while a last resort, involves proactively returning the vehicle to the lender. This action will still negatively impact your credit score, remaining on your report for up to seven years, but it can help avoid additional fees associated with involuntary repossession. Seeking guidance from non-profit credit counseling services can provide personalized financial advice and help explore all available options.