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How Many Car Payments Can You Defer?

You've added up your bank balance six different ways, but there's no getting around it: You won't be able to make your car payment this month. Should you prepare to face the repo man? Not so fast. You may be able to defer your car payment—that is, skip or reduce your payment for a certain time period.

How often can you use this tactic? The number of times you can defer a car payment depends on your lender and their deferment policy. Here's how auto loan deferment works and how to decide if it's a good solution for you.

What Is Auto Loan Deferment?

Auto loan deferment is when your lender agrees to let you pay a lower loan payment or not make a payment for a certain time period. Lenders sometimes refer to this as a loan extension or postponement.

Not every auto lender allows deferments, and those that do may have different criteria for approving one. For example, some lenders may require you be current on payments; others allow deferment even if your account is past due. The length of deferment also varies depending on your lender, but typically ranges from one to three months. With some deferments, you won't make a payment at all; with others, you'll pay only the interest on the loan during the deferment period.

Each lender has its own deferment application process. Some build the option right into the loan agreement: All you have to do is choose the "skip a payment" option in your payment coupon book or on the lender's website where you normally make your payments.

Other auto lenders ask you to submit a "hardship letter" to get approved for deferment. The letter explains why you're requesting a deferment and when you'll be able to start paying your loan again. Lenders review the hardship letter, check your credit score and look at your credit report to decide if you qualify for deferment. If they notice your credit score is lower than it was when you got your car loan, they may not approve your deferment.

Deferring your payments isn't the same as eliminating them. You'll still be responsible for paying the full amount of any skipped or reduced payments after your deferment ends. These amounts will be added on to the end of your repayment period, extending your loan repayment period. Interest continues to accrue throughout your deferment, and lenders may charge fees for deferment. Before applying for a loan deferment, make sure you understand all the costs.

Can You Defer Your Auto Loan Payments More than Once?

The number of times you can defer your car payment depends on your lender. If you're considering applying for deferment, ask the lender if this is your only opportunity to do so, or if you can defer payments more than once.

Keep in mind if you don't receive deferment and you miss a payment, your loan may move to default after as little as 30 days and your car could be at risk for repossession. Most lenders don't rush to repossess a car right away because the process costs them money—they would rather you make good on your loan and keep your car. If you have a history of late payments on your account, a poor credit score or other signs of ongoing financial difficulties, lenders may be more likely to act quickly.

Will a Car Loan Deferment Affect Your Credit?

When a lender approves your deferment request, they may report to the credit bureaus that your loan is in deferment. Having a deferment mark on your credit report won't directly hurt or help your scores. What will hurt your credit score is skipping a loan payment before the lender approves your deferment.

Never assume your application for loan deferment has been approved and that you can stop making payments. Continue making your payments until you have it in writing that your lender or loan servicer has approved your application.

Alternatives to Auto Loan Deferment

If you can't get an auto loan deferment, here are some alternatives to consider.

Change your payment due date. Are you facing a temporary cash shortage? Some lenders will let you change your payment due date. If your car payment is due a few days before payday every month, requesting a slightly later due date could be all you need to do to get back on track.

Ask your lender about hardship options. If you don't think you'll be able to pay your auto loan going forward, contact your lender to ask if they can offer any hardship options. If you are proactive about your problems, some lenders will work with you, especially in unusual situations such as a major economic downturn.

Refinance your loan. When you refinance an auto loan, you get a loan from a new lender, who pays off your old loan. Ideally, your new loan will have a lower interest rate, reducing your monthly payments. A longer loan term can also lower your monthly payments.

But refinancing an auto loan isn't a slam-dunk. You're most likely to be approved for refinancing your loan if you're current on your car payments, you have a steady income, and your credit score has improved since you got the original loan. In addition, lenders may not refinance a loan if your car is too old or if the loan payoff amount isn't within their approved range.

Refinancing will generally cost you more in the long run than sticking with your existing loan. Even if your payments are smaller, a longer repayment term means you'll pay more interest over the life of the loan. Your current lender could also charge you a prepayment penalty for paying off the loan early, adding to your costs.

Get someone else to assume the loan. If your auto loan agreement allows it (many don't), you may be able to transfer the loan to someone else. That person must have a credit score at least as good as yours and be able to assume payments of at least the same amount as yours. Once the lender approves them, they will be issued a new loan. If you want to take this route, you may still want to apply for a loan deferment so you won't have to make payments while waiting for your loan transfer to get approved.

Sell the car. If you have equity in your car (that is, the car is worth more than you owe on the loan), you may be able to sell the car to a private party and use the proceeds to pay off the loan. This can be a smart move if you have an expensive car with a high monthly payment you can no longer afford. Depending on how much you get for the car, you might have money left over to buy a cheaper vehicle.

Voluntarily surrender the car. Having a car repossessed because you can't make your payments will not only damage your credit score but can also be a humiliating experience. To avoid the embarrassment and show the lender you are acting in good faith, you can voluntarily surrender the car to the lender. The lender will sell the car and use the proceeds to pay off your loan. If the proceeds aren't enough to pay off your loan in full, however, you'll still be responsible for the balance. While a voluntary surrender has an extremely negative impact on your credit score, it is slightly less damaging than having a repossession on your credit report.

Should You Apply for a Car Loan Deferment?

An auto loan deferment that lets you skip or reduce your loan payment temporarily could be the break you need if you can't make your payment. If you're considering this option, talk to your lender to find out how long the deferment lasts, how much it will cost and whether you can defer payments more than once. You'll generally need a good credit score to get a deferment; check your credit score before applying to see where you stand. Getting approved for a deferment on your car loan isn't to be taken lightly, but it could make all the difference in keeping up with your payments—and keeping up your credit score.

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