What Is It Called When You Move a Car Payment to the End?
Learn how to adjust your car loan payments, including deferring them to the end of your term, and explore other options for financial flexibility.
When you move a car payment to the end of your loan, it is commonly referred to as a “payment deferral” or a “loan extension.” This arrangement is a formal agreement with your lender to temporarily postpone one or more scheduled payments.
Understanding Loan Payment Deferral
A loan payment deferral, also known as a loan extension, allows a borrower to temporarily pause or reduce monthly car payments. Deferred payments are not forgiven; instead, they are added to the end of the original loan term, extending the loan’s duration.
During the deferral period, interest continues to accrue on the outstanding principal balance. This means that while you gain immediate financial relief, the total amount of interest paid over the loan’s life will likely increase. Therefore, extending the loan term by deferring payments will lead to more interest accumulating over a longer period.
Some lenders offer a “skip-a-payment” program, a type of deferral that allows a borrower to skip a payment if eligible. These programs also result in the skipped payment being added to the end of the loan term, and interest continues to accrue. The primary outcome of any deferral is an extended loan term and a higher total cost due to continued interest accumulation.
Qualifying for a Payment Adjustment
Lenders have specific criteria for borrowers to qualify for a payment deferral or loan extension. Your loan must be in good standing, meaning you have made consistent, on-time payments and have not defaulted. Lenders review your payment history to ensure you meet this standard. You may also need to demonstrate a legitimate financial hardship, such as job loss, unexpected medical expenses, or a family emergency.
Before contacting your lender, gather necessary information and documentation. This includes your loan account number and personal identification. You will also need to provide details regarding your financial hardship, which may involve a hardship letter. Depending on the lender, you may be asked for supporting documentation, such as proof of income reduction or medical bills.
The lender will review the provided information to determine if you meet their eligibility requirements. Not all lenders offer deferral options, and those that do may limit the number and frequency of deferrals allowed over the loan’s life. Some may permit one deferment, while others might allow up to two per calendar year.
Process for Requesting a Change
After assessing eligibility and gathering information, formally request a payment deferral or loan extension from your lender. You can initiate this process by contacting the lender’s loan servicing department directly, often by phone or through online portals.
When communicating with the lender, clearly explain your financial situation and the reason for your request. Provide the information and documentation you prepared, such as your loan account details and evidence of hardship. The lender’s representative will guide you through their application process, which may involve completing a form or submitting a written request.
After your request is submitted, the lender will review it to determine if it meets their criteria. If approved, you will receive a formal agreement outlining the new loan terms, including the deferral duration and any associated fees or changes to interest accrual. Carefully read and understand this agreement before signing.
Other Options for Payment Flexibility
If a payment deferral or loan extension is not suitable, several other options exist for managing car payments. One strategy is refinancing the car loan. This involves obtaining a new loan, often from a different lender, to pay off your existing car loan. Refinancing can result in a lower interest rate or a longer repayment term, which can reduce your monthly payment.
Selling the vehicle is another option to eliminate the loan obligation. If the sale price covers the remaining loan balance, you can pay off the loan entirely. If the sale price is less than the outstanding balance, you would be responsible for paying the difference, known as a deficiency balance. Voluntary repossession, returning the car to the lender, is a more drastic measure. While this ends your obligation to the vehicle, you may still owe a deficiency balance if the car’s sale at auction does not cover the remaining debt. This action also has negative implications for your credit history.
Lenders may be willing to negotiate a different payment plan, especially if you are experiencing a temporary hardship. This could involve temporary reduced payments or interest-only payments. These arrangements can offer short-term relief. Discuss these possibilities directly with your lender to understand their policies and terms.