A deferment can be used to skip a month or two or to lower the monthly payment temporarily. Skipping the payment altogether is most common but both are possible. Not all lenders offer deferment. If they do, it will be mentioned in the loan paperwork or on their website. Different lenders handle deferments differently.
Some lenders will require justification with evidence and others will not. That evidence could be a medical bill, invoice for emergency home repairs, severance letter from work or other form of proof that you are in genuine need.
There is no set rule here. As long as you arrange the deferment in advance, with the agreement of the lender, it will not impact your credit score. All that happens is that you are exercising an option within your loan agreement or requesting a simple deferment. Because interest accrues daily, per most contracts, the amount of interest you owe between payments can change when you request a payment plan. Payment extension plans vary by lender, and every lender has different criteria for evaluating your account.
Some may limit the number of times you can defer payments. Some may not consider you qualified for an extension if you are behind on your payments. Reach out to your lender and ask questions until you understand their requirements. In general, a payment extension allows you to defer a certain number of monthly payments—usually one or two—until a later date, providing a brief break for borrowers suffering unexpected financial hardships or a natural disaster.
In some cases, a lender may allow you to temporarily defer entire payments, while other lenders may only allow you to defer the principal portion of your monthly payment, but still require you to pay the interest each month during the payment extension. Although a payment extension can help during a short-term hardship, your loan will still accrue interest during the extension.
The contract with your lender is typically a simple interest loan, which means the loan accrues interest daily based on your payoff balance. The lender calculates the interest you owe every time you make a payment.
If you are granted an extension, the length of the extension will determine how much additional interest builds up. If you apply for an extension earlier in your loan when your payoff balance is higher, the interest accrued would be higher than if you apply for an extension later in your loan. A payment extension can significantly increase the amount of interest you owe and may also result in extra payments at the end of your loan term.
Another option is to try to refinance through your auto lender or another lender. You might be able to get a lower interest rate which would reduce the size of your payment.
No one wants it to come to this, but if all else fails, or if the car is worth less than what you owe on it, you may have to consider turning it over to the lender in a process known as voluntary surrender. This is essentially forfeiting the car before the lender repossesses it. Because a voluntary surrender is a failure to repay your car loan, it appears as a negative entry on your credit report and likely will lower your credit score. It is considered less derogatory to your credit than a repossession, but it's still something you should try to avoid if at all possible.
Car loan deferment is never an ideal scenario, but under circumstances where you just need a month or two of relief to get your payments back on track, it can provide some welcome room to maneuver. Learn what it takes to achieve a good credit score. The purpose of this question submission tool is to provide general education on credit reporting. The Ask Experian team cannot respond to each question individually.
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