Is It Bad to Defer a Car Payment?

If you are struggling to make car payments, a car payment deferral offers a temporary solution to financial strain. This option allows you to pause or reduce monthly payments for a short period, helping individuals avoid missed payments and maintain their vehicle during unexpected financial challenges.

What Car Payment Deferral Means

Car payment deferral involves a temporary suspension of your regular monthly payments, typically for one to three months. This arrangement is not automatic and requires lender approval. During a deferral, skipped payments are not forgiven; instead, they are postponed to a later date, often added to the end of your loan term. Lenders may refer to this option as a “skip-a-payment” or “payment holiday.” You remain responsible for the full amount of the original payments.

How Deferral Impacts Your Loan

Deferring a car payment provides immediate relief but increases the overall loan cost. Interest continues to accrue on your outstanding principal balance during the deferral period, meaning the amount you owe in interest keeps growing. Deferred payments are typically added to the end of your loan, extending the total repayment period. This extension, combined with continued interest accrual, results in a higher total amount paid over the loan’s life than initially planned.

Regarding credit reporting, an approved deferred payment generally does not negatively affect your credit score like a missed payment would. Lenders typically report the account status as “deferred” or “in forbearance” to credit bureaus. While this helps avoid a negative mark, it is not necessarily a positive entry and could be viewed by future lenders as an indicator of financial instability. Failing to resume payments after the deferral period can significantly drop your credit score.

When Deferral Might Be an Option

Car payment deferral is typically an option during periods of temporary financial hardship. This includes situations like unexpected job loss, a medical emergency, or a temporary income reduction. It helps borrowers manage unforeseen circumstances and avoid defaulting on their loan. Proactive communication with your lender is important before missing payments, as most lenders have specific criteria for granting deferrals. Lenders may require you to be current on payments or submit a hardship letter explaining your situation to qualify.

Considering Alternatives to Deferral

If you are struggling with car payments, several alternatives to deferral may offer more favorable long-term financial outcomes. One option is to refinance your loan, which could lower your monthly payments by securing a lower interest rate or extending the loan term. While extending the term may result in more interest paid overall, it can provide immediate budget relief.

Adjusting your budget to reduce non-essential expenses is another practical step to free up funds for your car payment. You could also negotiate with your lender for other payment modifications, such as changing your payment due date to align better with your income. If the car loan becomes unaffordable, selling the vehicle might be a last resort to avoid further financial distress and potential repossession. Seeking professional financial counseling can also provide tailored advice for managing broader financial challenges.