Is Auto Loan Deferment Right For You?

Just because you can defer a few car payments doesn't mean they aren’t due eventually. Before you accept a loan deferment to get through tough times, consider what your budget is going to look like when those payments come due.

What Is Auto Loan Deferment?

An auto loan deferment is when a lender agrees to temporarily pause your payments. Deferment typically lasts 30 to 90 days, but to be eligible, you can't already be behind on your auto loan payments. The payments aren't skipped so much as moved to the back of your loan term, in most cases.Is Auto Loan Deferment Right For You?

For example, you need to temporarily stop your payments for an unexpected situation, and your auto lender agrees to pause them for 90 days. If your loan was originally scheduled to end in April, it would now end in July. Additionally, some lenders require that you continue to pay interest during the deferred months, adding a little more to your overall loan balance.

Not all deferment plans are created equal, so be sure to speak with your lender about the specifics. Deferment is typically given based on your individual situation and may require you to prove your hardship.

Budgeting for Deferment?

Though a deferment doesn't last long, you need to consider where you're going to be financially in about a month, two months, and three months from the time your lender grants you a deferment plan.

  • Will this be enough time to get back on your feet?
  • Can you comfortably resume car loan payments after this?
  • Can you afford to pay the extra interest if you have to?
  • Will adding payments at the end of your auto loan impact your future budget?

If you can answer yes to the first three questions above, and no to the fourth, a deferment might be just the thing for you. Auto loan deferment was made for borrowers whose situations truly are unexpected and temporary (who hasn't been there?!).

On the other hand, if you answered "no," "maybe," or "I don't know" to any of these questions, it may be time to consider other options for an affordable car loan.

What Are My Other Options?

When it comes to making your auto loan payment more affordable you have a few options to consider besides deferment. It comes down to whether you want to keep your current vehicle or not.

Refinancing

When keeping your car is not up for debate, refinancing might be the way to go! Most borrowers refinance their cars to save money on the monthly payment. This can be done by either qualifying to extend the loan term or receive a lower interest rate. Only the lower interest rate or combination of both options saves you money overall. If you extend your loan term without a lower rate it lowers your monthly payment, but you pay more overall.

Trade-In

If the vehicle isn't an anchor, it may be worth trading it in for something more affordable. It can be a good idea to trade in a car with a high payment to get something more affordable, especially if trade-in values are high. If you're trading in a vehicle with an auto loan your lender needs to be paid before you get any cash in hand. To have money to use as a down payment on your next, more affordable auto loan, there has to be equity in your car.

Equity means that your vehicle is worth more than you owe your lender. If your vehicle isn't worth as much or more than you owe, you're in a negative equity position and may have to make some payments out of pocket to get out of a loan you can no longer afford.

One final option that you may have for a trade-in is if a new lender allows you to roll the negative equity into your next loan. Keep in mind that this means paying more on your new car, and starting even further into negative equity on your next vehicle. This can be an option if you need it, but if you're already dealing with poor credit you may want to reconsider. Once you step onto the trade-in treadmill, it can be hard to stop the cycle of negative equity.

We Want to Help

If deferment isn't an option for your current auto loan situation and you're feeling the strain, we want to help. Bad credit borrowers often have their best shot at financing through a subprime lender, but not all dealerships work with them. Instead of searching all around trying to find the right lender, turn to us.

At The Car Connection, we work with a large network of special finance dealerships that are signed up with subprime lenders. These lenders rely on more than your credit to help qualify for financing. Let us connect you to a local dealer – just fill out our fast, free, no-obligation auto loan request form.


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