How to Defer a Car Payment and What You Need to Know

Car payment deferment is a financial arrangement allowing borrowers to temporarily postpone or reduce their monthly car payments. Lenders typically offer this option to provide a temporary pause in financial obligations, helping individuals manage finances during challenging periods.

Understanding Car Payment Deferment

Car payment deferment is a formal agreement between a borrower and their lender to temporarily suspend or reduce scheduled auto loan payments. Deferment does not forgive payments; instead, missed payments are added to the end of the loan term. Lenders offer this option to prevent default, especially when borrowers face financial hardships like unexpected medical expenses, job loss, or reduced income.

Preparing Your Deferment Request

Before contacting a lender, assess your eligibility. Lenders often require borrowers to be current on payments, or to have recently missed one, to qualify. A valid reason for financial hardship, such as job loss, reduced income, or a medical emergency, is a prerequisite. Be aware that deferment availability and terms vary based on loan type and lender policies.

Gather all necessary information beforehand. This includes your loan account number, personal identification, and specific details of your financial hardship, such as dates of job loss, reduced income, or medical bills. Lenders may request documentation like recent pay stubs or medical statements to verify the hardship. Research the lender’s deferment policies, often found on their website or in your original loan agreement, to understand what to expect.

Submitting Your Deferment Request

Borrowers can submit their deferment request through various methods. Many lenders offer dedicated phone lines, online portals, or require written correspondence. When communicating, clearly articulate the request and concisely explain the financial hardship, referencing prepared details. Contacting the lender proactively as soon as a payment issue arises is recommended, as it can broaden available options.

If the lender requires specific forms or supporting documents, such as a hardship letter, they will provide submission instructions. These documents might need to be uploaded through an online portal, mailed, or emailed. A hardship letter should explain the situation and indicate when regular payments are expected to resume. After submission, confirm receipt of the request, note any reference numbers, and inquire about typical response times, which can range from several business days to a few weeks.

Impact of Deferment on Your Loan

A granted deferment has several financial consequences. Interest typically continues to accrue on the outstanding principal balance during the deferred period, meaning the total interest paid over the loan’s life may increase. Deferred payments are not forgiven but are added to the end of the loan term, extending the overall repayment period. For instance, deferring one month’s payment on a 60-month loan might result in a 61-month term.

When the deferment period concludes, payments resume according to the new schedule. Depending on lender policy, the deferred amount might be amortized over the remaining term or collected as a lump sum at the end of the loan. Confirm these specifics with the lender during the deferment agreement. Regarding credit reporting, an approved deferment typically does not negatively impact credit scores, as the arrangement is made in advance with the lender. This differs from missing payments without prior agreement, which can severely damage a credit score.

Exploring Other Options

If deferment is not a suitable solution, or if more comprehensive relief is needed, several other options may be available. Refinancing a car loan involves obtaining a new loan, often from a different lender, to pay off the existing one. This can potentially lead to a lower interest rate or a longer repayment term, resulting in lower monthly payments, though it may increase the total interest paid over the loan’s lifetime.

Another alternative is a loan modification, which involves negotiating with the current lender to permanently change the terms of the existing loan contract. This could include lowering the interest rate, extending the loan term, or even temporarily reducing payment amounts, often requiring a verifiable hardship. Some lenders might also offer a temporary payment reduction, which is a short-term decrease in the monthly payment amount rather than a full pause. As a last resort, if financial difficulties persist and no other options are viable, selling the vehicle to pay off the loan may be considered. This requires understanding the car’s market value versus the outstanding loan balance to determine if there is positive or negative equity.