What Is a Skip Payment and How Does It Work?

Skipping a loan payment can provide short-term financial relief, but it’s important to understand how it works and the potential consequences. Some lenders allow borrowers to defer a payment without being considered delinquent, though this often comes with conditions such as continued interest accrual or administrative fees.

Common Loan Arrangements That Offer a Skip Payment Option

Certain loans are more likely to include a skip payment feature, primarily to assist borrowers facing temporary financial strain. Auto loans, particularly from credit unions and smaller banks, frequently offer this option. Many lenders allow borrowers to skip one or two payments per year, often around the holiday season. However, interest continues to accrue, increasing the total loan cost.

Mortgage lenders sometimes provide skip payment options, typically through forbearance agreements. Borrowers experiencing financial hardship may defer payments for a set period, but the missed amounts are usually added to the loan balance or repaid through an adjusted payment schedule. Some lenders also offer biweekly mortgage payment plans that allow for occasional skipped payments without penalty, though these arrangements vary.

Credit card issuers occasionally extend skip payment offers to cardholders in good standing, particularly during promotional periods. While skipping a payment may not result in a late fee, interest continues to accumulate on any outstanding balance, potentially leading to higher overall costs, especially for cards with high annual percentage rates (APRs).

Qualifications That Lenders May Require

Lenders typically set eligibility criteria to ensure only borrowers in good standing can take advantage of skip payment programs. A strong payment history is often required, as institutions are more likely to grant flexibility to those who have consistently met their obligations. Borrowers with recent late payments or a history of delinquencies may be denied.

Loan tenure also plays a role in eligibility. Many lenders require a borrower to have made a minimum number of consecutive on-time payments before requesting to skip one. For example, an auto loan provider may stipulate that at least six or twelve months of payments must be completed before the option becomes available. Some financial institutions may also restrict this feature to loans that are not in their final repayment stages.

Lenders may also consider the borrower’s outstanding loan balance and debt-to-income ratio. If a borrower’s remaining balance is too high relative to the original loan amount, the lender may hesitate to approve a skipped payment. Additionally, if a borrower has recently taken on significant new debt, lenders may reassess their financial stability before granting approval.

How to Initiate a Skip Payment

Borrowers must contact their lender to request a skip payment, as approval is not automatic. Many financial institutions require a formal application, which can often be completed online, over the phone, or in person. Some lenders have dedicated request forms within their banking apps, while others may require written documentation explaining the reason for the request. Providing supporting details, such as recent financial statements or proof of temporary hardship, can improve the chances of approval.

Once submitted, the lender reviews the borrower’s account to determine eligibility. This may involve checking for outstanding fees, verifying account standing, and assessing whether the loan terms allow for a deferral. Some lenders provide instant decisions, while others may take a few business days to process the request. If approved, the borrower must confirm acceptance of any revised terms, which may include an updated payment schedule or adjustments to interest accrual.

Additional Fees or Charges

Skipping a loan payment can lead to additional costs. Some lenders charge a flat administrative fee for processing the request, typically ranging from $25 to $75, depending on the lender and loan type. These charges are usually added to the next scheduled payment.

Interest capitalization can also make a skipped payment more expensive. When a payment is deferred, the unpaid interest that accrues during the skipped period may be added to the principal balance. This means future interest calculations will be based on a higher loan amount, increasing the overall cost of borrowing. This effect is particularly significant in long-term loans, such as mortgages, where even a modest increase in principal can result in thousands of dollars in additional interest over the life of the loan.

Borrowers should carefully review the terms of a skip payment arrangement before proceeding to ensure they understand any fees, interest adjustments, and repayment changes.