Should I Defer My Car Payment?
You should defer a car payment only if you have to, and it will come at a cost.
The intent of a car payment deferment is to provide you with additional time to repay your obligation due to a temporary cash flow problem you may have. Finance charges typically continue to accrue during that period of time.
How does a car payment deferment work?
In most instances the financial institution or servicer (both referred to as lender in this post) agrees to defer a full payment or the principal payment portion and resume your regular payment schedule after an agreed date.
Sometimes they may allow for multiple payments to be deferred. Maybe include a due date change.
In essence you extend the term of the contract by the amount deferred.
How do I know if I’m allowed to defer a car payment?
Each lender will have their own deferment policy.
Not all lenders provide this option. Some may have a no deferment policy.
You will have to contact the lender to find out if this is available. Whether it’s spelled out in your contract or not, you should call the lender to find out what exact steps you need to take.
If not spelled out in the terms of the contract, the deferment policy may be created and/or eliminated at any time by the lender.
An example of this would be a catastrophic hurricane affecting a specific State. The lender may enable temporary relief by establishing a deferment policy for those affected.
What documentation is required to defer a car payment?
The specific policy procedures vary substantially from lender to lender.
It can be as lenient as one deferment per year with no proof. Or it may be as complex as providing a deferment only under specific circumstances, e.g., a delinquent mortgage or loss of employment.
When the prerequisite is a specific circumstance, the lender will typically require proof, e.g., a delinquent mortgage statement or proof of enrollment with the proper county unemployment office (past due mortgage and loss of employment respectively).
The lender may also require to sign a separate agreement as this may be considered a modification of the original terms of the contract.
What happens to my credit meanwhile?
To be clear, the lender is obligated to report the exact payment history of the account.
If you start this process early it will likely not reflect negatively on your credit. As long as it’s in effect in the lenders system before the 30th day of delinquency.
You will need to provide additional time for the paperwork to be reviewed/approved as well as time for the lender to input the proper changes in their system.
The bottom line
Timely communication with your lender is important. It is best to find out the specific details of the deferment policy (if any) so that you can make the best decision.
Make the car payment if possible and avoid deferring any payments at all. Otherwise you will end up paying higher finance charges than initially established in the contract. This is assuming you were only making the minimum required monthly payments.
If you do proceed with a deferment, start making additional payments once you are back on your feet. This will help you get back to your original schedule of payments and finance charges or maybe even ahead.
A way to prevent a car payment deferment situation in the first place, would be to normally schedule yourself to pay more than the regular payment and keep your contract paid ahead.
This is the best way to protect yourself against any future hardship. It holds true for most types of installment contracts such as mortgages, cars, and personal loans.
At MyCarContract.com we provide the advice and tools so that you can make the best decision that fits your personal circumstances.