What Is a Deferred Car Payment & How Does It Work?

A deferred car payment represents a temporary pause in your scheduled car loan payments. Lenders offer this option to provide relief to borrowers experiencing short-term financial difficulty. It allows an individual to temporarily suspend their obligation to make payments on their car loan.

How Deferred Payments Work

A deferred car payment allows you to skip one or more monthly payments, but these payments are not forgiven; they are postponed to a later date. This temporary relief is granted during unforeseen financial hardships, such as job loss, medical emergencies, or other unexpected expenses. Lenders may also offer deferments during widespread events like natural disasters.

To qualify for a deferment, borrowers need to be in good standing with their lender, meaning their payments have been current before the request. Some lenders have specific policies on how many deferments are allowed over the loan’s lifetime or within a calendar year. Eligibility criteria and the duration of the deferment period can vary significantly among lenders.

Steps to Request a Deferment

Initiating a deferment request begins with contacting your car loan lender directly. Deferment is not automatic and requires their approval. Be prepared to explain your current financial situation and the reason for needing the deferment.

Lenders may require specific information, such as your loan account details and documentation supporting your hardship, like proof of income loss or medical bills. Some lenders have a “skip a payment” option available through their online portals or payment books, while others may require a formal written request or hardship letter. Once approved, the lender will provide a deferment agreement outlining the new terms.

Impact on Your Loan

Deferring a car payment has financial consequences on the loan. Interest continues to accrue on the outstanding loan balance during the deferment period, meaning the total cost of the loan will increase. The deferred payments and additional interest are added to the end of the loan term, extending the overall repayment period.

In some cases, the missed payments might be structured into higher future payments or a balloon payment at the loan’s maturity. While a deferment can provide immediate financial relief and help avoid late fees or repossession, it is not without cost. The extension of the loan term and continued interest accrual mean you will pay more over the life of the loan than if you had maintained the original payment schedule.