What Happens When You Defer a Car Payment?

If you're like some Americans, making your car payment can be a difficult task, and so you might be exploring the option of deferring your car payment. Deferring a car payment means postponing it until a time when you can make the payment. So, what happens when you defer a car payment? We will discuss the answer to this question in much detail below.

What Happens When You Defer a Car Payment?

When you defer a car payment, your lender will essentially allow you to skip one to three payments in exchange for a fee. That said, you are still on the hook for the payments, but the deferred (skipped) payments are added to the end of your loan. For example, if you skip two payments, you will have two extra payments at the end of your loan. Also, after deferring payment, you will have to resume making your regular payments on your car loan.

Most lenders will allow you to defer one or two payments, while some will allow you to defer up to three payments. That said, regardless of how many payments you defer, you're not off the hook for those payments. In fact, you will have to make those payments as they will be pushed back to the end of your loan.

Usually your ability to defer a payment is usually written into your car loan agreement. Typically, to qualify for car payment deferral, you must make written request to your lender, explaining to them why you should qualify for a deferment, as well as agreeing to continue making timely payment after the deferment period ends.

That said, not all car loan lenders permit the practice of payment deferment and will require you to make your car payment regardless of whether you're facing economic hardship. To determine whether you're eligible for deferring a car payment, you should consult your car loan agreement as it will spell out whether you're eligible to defer your payments.

Additionally, some auto loan lenders will only allow you to defer your car payments if you have good credit. If your credit score has suffered a significant drop, some lenders will not permit you to defer your car payment. This is something that you should keep in mind if you're considering postponing your car payment.

Also, if the lender agrees to allow you to defer your car payment, they will likely ask you to enter into a forbearance agreement, which will usually spell out how long you can defer your payment, the fees and penalties that you will pay for deferment, as well as agreeing that you will continue making regular payments after the deferment period ends.

Again, if you eventually do decide to defer your payment, you should keep in mind that you're not off the hook for the payments. Instead, they will be added to the end of your loan and interest will begin accruing on them, which will cause you to pay significantly more in the long run for deferring your car payment.

How Often Can You Defer Your Car Payment?

To know how often you can defer your car payment, you should check your car loan agreement. If you're able to defer your car payment, you will likely find a clause in your contact laying out the terms of deferment, such terms will include how many months you can defer your payment, as well as the fees and penalties associated with payment deferment.

You will likely be able to access a copy of your car loan agreement by visiting the online portal where you make your car payments, or you can try contacting your lender and directly asking them about your options as they pertain to deferment of payments.

Many lenders will require that you're current on making your car payments before they agree to a deferment, while others will permit you to defer a payment regardless of your current payment status.

Should You Defer Your Car Payment?

Deferring a car payment is a good option for those who have experienced a short term setback, such as an illness, emergency expense, or temporary reduction in come that will subside within a short period of time. It's a good option if you know that you will be able to making regular payments on your car in one or two months.

Deferring a payment is not a good option for someone who wants a permanent solution. This is so because after the deferment period ends (1 to 3 months), you are required to continue making payments on your car. So, you should only use it for temporary emergencies that you know will subside within a short period of time.

For example, if you believe that you will not be able to continue making payments on your car, you should consider selling it and using the proceeds to pay off the loan on your car. If you have money left over after paying off your car, you should consider the option of buying a less expensive car with what's left.

Does Deferring a Car Payment Hurt Your Credit?

Deferring a car payment will not hurt your credit nor will it lower your credit score so long as you're exercising the option in your car loan agreement. This is so because when exercising your option to defer a car payment, you're essentially paying off the car loan account as agreed upon. The notation on your credit report will show that the account is being "paid as agreed."

As such, by deferring a car payment when exercising a contract option to do so, your credit report will not reflect delinquency because you're paying the account as originally agreed upon between you and your car loan lender. So, if you're experiencing a temporary hardship that's making it difficult for you to pay off your car loan, you should exercise your contractual right to defer your car payment.

How Many Car Payments Can You Defer?

The amount of car payments that you can defer will depend on how many payments your lender will allow you to defer. Usually, your contract will spell out how many car payments you can defer. So, check your car loan agreement to figure out how many car payments you can defer. Typically, auto loan lenders will allow you to defer 1, 2, or 3 car payments, but not more than this. Also, you should keep in mind that deferring your car payment does not mean that you will never have to pay back the money, your car payments will be added to the end of your loan, thus extending the term of repayment.

Alternatives to Deferring Your Car Payments

Refinance Your Car Loan

If you are having difficulty making your car payment, the first alternative you should explore is to refinance your car loan. Refinancing your car loan allows you to reduce your monthly car payment because you're taking out a loan on a smaller amount, thus reducing your car payment. That said, to be able to refinance your car, you must have good credit. If you've already missed payments on your car loan, it will be difficult to refinance your car. The drawback to refinancing your auto loan is that you will extend the repayment term of your car loan in return for lowering your monthly payment. That said, refinancing an auto loan and extending your repayment term is better than damaging your credit by failing to make timely payments on your auto loan.

Sell Your Car & Use Proceeds to Pay it Off

The second alternative you have is to sell your car and use the proceeds of the sale to pay off the car loan. That said, to be able to use this method, your car must be worth more than the amount of money that you owe your car lender. If you sell your and the sale amount is not sufficient to pay off your vehicle, you will have to come up with the money to cover the difference between the value of the car and the amount you owe on it.

Get Someone to Assume the Loan

The third option that you have is to find someone to assume or take over the loan on your vehicle. However, to be able to transfer the loan to someone else, your car loan agreement must allow this, many car loan agreements prohibit borrowers from transferring the loan to a third party. In the event that you're successful in getting someone else to assume the loan, the person assuming the loan must have a credit score that's good as yours and he will be liable for making the payments on the vehicle. In fact, the person assuming the loan will be issued a new loan under his or her own name.

Voluntarily Surrender Your Car

The last option that you have, and this is a painful one, is to voluntarily surrender your car. You only want to use this option if nothing else will work. When it comes to your credit and credit score, a voluntary surrender and an involuntary repossession will have the same negative impact on your credit. Voluntary surrender negatively impacts your credit score because it means that you're not paying off your car loan as agreed, which will have a significant negative impact on your credit. You should only choose this option if you've exhausted all of your other alternatives. If you have a short term money issue and you'll be able to continue making your car payment, you should explore the option of deferring your car payment before resorting to voluntarily surrendering your vehicle.

Frequently Asked Questions (FAQs)

1. Can you defer your car payment more than once?

The amount of times that you can defer your car payments depends on your car loan lender. To know how many deferred payments you qualify for, you should contact your car loan lender and ask them how many times you can defer your car payment. Usually, auto lenders will allow you to defer anywhere between 1 to 3 payments in exchanges for fees.

2. Does deferring a car payment hurt your credit score?

No, merely deferring your car payment will not hurt your credit score.

3. What does it mean to defer your car payment?

Deferring your car payments means that you will be allowed to skip making your car payments for 1 to 3 months. That said, you are still liable for making the payments, but they will be added to the end of your loan, meaning you're still liable for making them but at a later time.

4. How do I defer my car payment?

You can defer your car payment by contacting your car loan lender and asking them about deferring your car payment. Usually, they will send you and agreement that you need to sign and return, as well as pay a small fee to defer your car payment.


What Does Having Equity in Your Car Mean?

You can't do anything without a car in California and most Americans have experienced going to a dealership to purchase a car. If you've been to a dealership, you've probably heard the term car equity being thrown around and so you might be wondering what does having equity in your car mean? We will answer this question in much detail below.

What Does Having Equity in Your Car Mean

Having equity in your car means that the fair market value of your car exceeds the amount of money that you owe on your car. For example, if your car is worth $22,000 and you only owe $12,000 on your loan, you have positive equity of $10,000 in your car. So, the next time you hear a salesperson asking you about the equity in your car, now you know that it refers to the amount of money you in your car after your loan is paid off.

That said, you can either have positive equity in your car or you can have negative equity. You will have positive equity when the value of your car exceeds the amount you owe on it, and you will have negative equity when you owe more money on your car than its actual market value.

Here is an example of negative equity: You have a car that has a fair market value of $25,000 yet you owe $30,000 on the car. In this example, you have $5,000 of negative equity in your car.

When you head over to a dealership to purchase a car, you always want to have positive equity because you can use the positive equity as a down payment for your new car. On the other hand, if you have negative equity and want to trade in your car without paying off the negative balance, you can roll over your negative equity into your new loan.

For example, if you're trading in your car, and your car has a fair market value of $17,000 but you still owe $20,000, you have negative equity of $3,000. Some dealers will allow you to roll over the negative equity of $3,000 into your new loan. Many people choose this option because it saves them from having to pay more cash upfront to get a car.

How to Calculate the Equity in Your Car?

If you have a car and want to calculate the equity you have in your car, you can do so by either accessing your paper statement or your online car payment statement and looking at the total amount that you owe on your car. Most lenders will place the amount that you owe on your bill.

Once you have how much you owe on your car, you should check the Kelly Blue Book value of your car by heading over to KKB's website and entering basic information of your car, such as the make, model, year, mileage, and condition of the car. Kelly Blue Book will then give you the current value of your car.

You should deduct the KBB value of your car from the amount that you owe on the car. If the resulting number is positive, that's the positive equity in your car, however, if the value is negative, then you have negative equity, meaning you will likely owe money on your car if you choose to sell it.

In the event that you do not want to rely on KBB to assess the value of your car, you can take your car to a dealership and ask them to evaluate your car for you. One such dealership is Car Max, you can take your car there and they will give you a free appraisal for your vehicle.

Should You Trade in Your Car?

If you want to trade-in your car, the first question that you need to ask yourself is whether you have positive on negative equity in your car. If you have positive equity, trading in your car may be a good idea for you because the dealer will you owe you money when you give them your car. You can use the positive equity as a down payment on your new car.

However, if you have negative equity in your vehicle, you should consider the options available to you. This is so because you will have to come up with the money to pay the negative equity in your car. If you don't have the cash to pay off the negative equity, you should consider the following options:

1. Postpone - You should consider postponing trading in your car until you have either paid off your car or until you have positive equity in your car. This is so because if you have positive equity, you can use your vehicle as a down payment for your new one instead of being on the hook for paying off the loan on your trade in as well as your new car.

2. Rolling Negative Equity - The second option that the dealership will likely offer you is to roll the negative equity into your new loan. This means that the dealership will take the difference between the fair market value of your car and the amount the you owe, and add it into your new car loan. For example, if you want to lease a $25,000 Nissan Maxima and you have negative equity of $3,500 in your old car, the dealer will offer to add the $3,500 into your new loan.

You should approach rolling over negative equity into your new car because as soon as you sign your contract, you will be upside down on your new loan since your car will be worth less than the amount you owe. Also, your monthly car payment will be higher because you're paying off your previous car as well as your new car. So, if you have the option to avoid rolling over negative equity into your new loan, you should avoid it.

3. CSP Pro Tip - Also, if the sales person at the dealership offers to lower your payments in exchange for a lengthier repayment term, you should try to avoid a repayment term that exceeds 60 months. This is so because you may start to experience mechanical problems with your car while you're still making payments on it. Making payments on your car and payments to repair it could be burdensome for you. So, avoid it and try to keep your term below 60 months for a new car and 36 months for a used car.

Credit Score Planet Frequently Asked Questions (FAQs)

1. What does positive equity mean?

Positive equity simply means that the fair market value of your car exceeds the amount of money that you owe on your car.

2. What does negative equity mean?

Negative equity simply means that the amount of money that you owe on your car exceeds the fair market value of your car.

3. How do you know when your car has equity?

You can check whether your car has negative or positive equity by looking at the total amount of money that you owe on your car and the fair market of your car by checking a vehicle worth estimator, such as Kelly Blue Book. If the fair market value exceeds the amount you owe, you have positive equity in your car, however, if the amount of money you owe on your exceeds the fair market value, you have negative equity in your car.

4. What can you do if your car has negative equity?

If you have negative equity in your car, you generally have two options: you can either postpone selling your car until you have positive equity so that you can use it as a down payment on your new car, or you can rollover the negative equity into your loan, which means that you'll use the loan you're taking out to pay off the remaining balance on your trade-in.

5. How is equity calculated?

Equity is calculated by looking at the fair market value of your car and the amount of money that you owe on your car. You should then subtract the fair market value of your car from the amount of money that you owe on your car, if you're left with a positive number, you have positive equity, however, if you get a negative number, you have negative equity in your car.

Bottom Line

So, if you were wondering what does having negative equity in your car means, this simply means that your car has a fair market value that exceeds the amount of money that you owe on your car. If you want to trade in your car for a new one, you will benefit greatly from having a car that has positive equity because it means that you've paid enough money on your loan that you can use your trade-in as a down payment on a new car. If you have any general questions or comments on your car's equity, please leave it in the comments section below.