If you’re facing a tight budget, you might be wondering how many times can you defer a car payment. Deferring a car payment is a short-term relief option offered by some lenders, with limits on how frequently it can be used.
This article explains the rules, risks, and alternatives. You’ll get clear answers to help you make an informed decision.
Let’s look at what a deferment really means for your finances and your vehicle.
How Many Times Can You Defer A Car Payment
The direct answer is that policies vary widely, but most lenders allow one to two deferments per year. The total number allowed over the life of the loan is often capped at two or three instances.
You cannot simply decide to defer a payment. It requires formal approval from your lender or loan servicer. Skipping a payment without permission is a default, which can lead to repossession.
Always contact your lender to discuss their specific deferment or forbearance program before you miss a due date.
What Is A Car Payment Deferment?
A deferment formally postpones your payment due date. It is not forgiveness. The missed amount is added to the end of your loan term, or sometimes, your next payment becomes larger.
Interest usually continues to accrue on the loan balance during the deferral period. This means you will pay more interest over the life of the loan.
It is a tool for temporary financial hardship, not a long-term solution.
Deferment Vs. Forbearance
These terms are often used interchangably by auto lenders, but there can be subtle differences.
- Deferment: Typically structured, often pushing the payment to the loan’s end.
- Forbearance: May involve a temporary reduction or pause, with a specific plan to catch up.
Always ask your lender which term they use and exactly how the arrangement will work.
Common Lender Policies On Deferment Limits
Most lenders have clear guidelines in their loan contracts. Here are typical patterns.
Standard Auto Loan Deferment Rules
- Frequency: Usually once per 12-month period.
- Total Limit: Often 2 or 3 times total for the entire loan.
- Eligibility: Requires being in good standing (no recent late payments).
- Process: Formal request required before the payment due date.
Captive Lender Programs (Manufacturer Finance Companies)
Companies like Toyota Financial or GM Financial sometimes offer more flexible programs, especially during widespread economic hardships. They may allow consecutive deferments or have special hardship plans.
Check their website or call directly for current programs.
Credit Union And Bank Policies
These institutions may be slightly more restrictive but are often willing to work with members in good standing. Their policies are usually strictly defined in your loan agreement.
Some smaller banks or credit unions might consider a custom payment plan instead of a formal deferment.
The Step-By-Step Process To Request A Deferment
Follow these steps to increase your chances of approval.
- Review Your Loan Documents: Look for a “deferment” or “hardship” section to understand your contract’s terms.
- Contact Your Lender Early: Call as soon as you foresee trouble. Do not wait until you are already late.
- Prepare Your Explanation: Be ready to briefly state your reason (job loss, medical event, etc.).
- Ask Specific Questions: Inquire about fees, interest accrual, and how it affects your loan term.
- Get The Agreement In Writing: Never rely on a verbal promise. Request a written confirmation of the new terms.
What Happens After You Defer A Payment?
Understanding the aftermath is crucial. Your loan does not simply resume as normal.
Impact On Your Loan Balance And Term
The deferred payment, plus any added fees and continuing interest, is tacked on. This typically extends your final payoff date by one month for each payment deferred.
Your principal balance does not go down during the deferment period, which can slow your equity building.
Credit Report Reporting
A properly approved deferment should not be reported as a late payment to the credit bureaus. However, the agreement itself may be noted on your report.
Ensure your lender confirms they will not report it as delinquent. This is a critical point to get in writing.
Risks And Drawbacks Of Deferring Car Payments
While helpful in a pinch, deferments come with significant costs.
- Higher Total Interest Paid: Since interest compounds on a higher balance for longer, your total loan cost rises.
- Longer Time In Debt: You are extending your financial obligation, sometimes by several months.
- Potential Fees: Some lenders charge a processing fee for the deferment service.
- Risk of Repossession If Terms Are Broken: If you fail to meet the new agreement, repossession can happen quickly.
- Possible Tax Implications: In rare cases, if debt is forgiven, it could be considered taxable income. This is uncommon with deferments but worth noting.
Smart Alternatives To Deferring A Payment
Before choosing deferment, consider these other options which may have less financial impact.
Request A Modified Payment Plan
Ask if you can temporarily make smaller payments for a few months, with a catch-up plan later. This can keep you paying down principal, unlike a full deferment.
Explore A Loan Refinance
If interest rates have dropped or your credit has improved, refinancing could lower your monthly payment permanently. There will be closing costs, so calculate the break-even point.
Seek A Personal Loan For A Single Payment
A small, short-term personal loan to cover one or two car payments might be cheaper than the long-term interest of a deferment, especially if you have good credit.
Sell Or Trade-In The Vehicle
If the payment is consistently unaffordable, downsizing to a less expensive vehicle may be the most financially sound decision. You can often trade in your current car even if you owe more than it’s worth, though you’d roll the negative equity into the new loan.
How To Prepare For Future Financial Hardships
Building a buffer can help you avoid needing a deferment.
- Build An Emergency Fund: Aim for 3-6 months of essential expenses, starting with a goal of one car payment saved.
- Communicate With Your Lender Proactively: Lenders are more helpful to borrowers who communicate early.
- Review Your Budget Regularly: Look for areas to trim so you can allocate more to savings.
- Consider GAP Insurance: If your loan is upside-down, this protects you if the car is totaled.
Frequently Asked Questions (FAQ)
Can You Defer A Car Payment More Than Once?
Yes, but it is limited. Most lenders cap the total number of deferments at two or three over the entire loan. You typically cannot defer payments consecutively without special approval.
Does Deferring A Car Payment Hurt Your Credit?
An approved deferment in itself should not hurt your credit score, as it is not reported as a late payment. However, the lender may note a “hardship program” on your report, which some lenders may view cautiously. The biggest risk to your credit is missing a payment without an agreement.
What Is A Grace Period For A Car Payment?
A grace period is a short window (often 10-15 days) after the due date where you can pay without a late fee. It is not a deferment. Your payment is still considered late if paid during the grace period, and it may be reported as such to credit bureaus if it crosses the due date.
How Do I Know If My Lender Allows Deferments?
The best ways to find out are to: 1) Check your original loan contract for a “deferment” or “forbearance” clause. 2) Call your lender’s customer service or hardship department directly. 3) Look on your lender’s website for a “financial hardship” assistance page.
What Happens If I Just Skip A Car Payment?
Skipping a payment without lender approval is a loan default. Consequences include late fees, credit score damage (a 30-day late payment can stay on your report for seven years), and repossession of the vehicle. Always seek an agreement first.