Car loan payment deferrals can provide temporary financial relief if you’re facing financial challenges. By postponing your monthly car payments for a certain amount of time, you may be able to avoid defaulting on your car loan while dealing with your financial issues. But before you choose to defer your car payments, it’s important to get familiar with the potential effects of deferring payments, such as interest accruing. Let’s take a closer look at deferring car payments to see if this option is suitable for you.
Key Points
- A car loan payment deferral lets you temporarily pause your monthly payments if you’re suffering from financial hardship.
- During a car loan payment deferral, interest continues to accrue on the remaining loan balance.
- If you don’t qualify for a car loan payment deferral, consider alternatives, such as refinancing your loan or selling your car.
What Is A Car Loan Payment Deferral?
A car loan payment deferral involves a temporary stop to making car loan payments for a specified period. During this time, you will not be penalized for missed payments.
That said, you’re not necessarily off the hook from ever making payments in the future. Generally speaking, the interest will likely continue to accrue, which will be added to your loan at the end of the term or spread across future payments.
Can You Make A Car Loan Payment Deferral?
Yes, you can defer your car loan payments. Contact your lender to see if they offer a deferral program, and request one as you explain your financial difficulties. Your lender will review your request to determine the exact amount of time you can postpone your payments, after which you’ll need to resume payments.
Canada’s big banks offer car loan deferral programs as follows:
Scotiabank
You can request a car payment deferral by contacting Scotiabank and specifying how much time you need. Scotiabank will review your request, and if you’re approved, your payments will be deferred, though interest will continue to accrue. You’ll receive a notice within 30 days of your deferral detailing the updated cost of your loan. Your loan payments will re-start on the first payment date after the end of the deferral period.
Learn more: What Happens If You Miss A Car Loan Payment With Scotiabank?
RBC
RBC payment deferral program for auto loans allowing customers to temporarily postpone their payments. To participate in this program, your account must be up-to-date and in good standing. Interest will continue to accrue and will be added to the loan amount.
Learn more: What Happens If You Miss A Car Loan Payment With RBC?
TD Bank
TD Bank offers auto loan payment deferral options if you’re struggling to keep up with your payments. Schedule an appointment with a TD advisor to request a deferral and discuss the options available to you. Keep in mind that interest may continue to accrue throughout the deferral period, and you’ll have to resume payments once the deferral period ends.
Learn more: What Happens If You Miss A Car Loan Payment With TD?
CIBC
CIBC offers payment deferrals for auto loans to clients who are experiencing financial difficulties. To request a payment deferral, you’ll need to fill out CIBC’s financial assistance form through CIBC Online Banking.
Learn more: What Happens If You Miss A Car Loan Payment With CIBC?
How To Request A Car Loan Payment Deferral
Start by speaking with your credit provider to discuss your options if you’re having trouble keeping up with your car loan payments. Most lenders don’t want to see you default on your loan and may be willing to work with you to provide financial relief.
Lenders often offer the option to skip or defer payment so that the amount due is pushed back until the end of the loan. This allows you to navigate through short-term financial hardship while not having to worry about the deferred amount being lumped with the next month’s payment.
However, every credit provider has a different policy with regard to how often you can request a payment deferral. And in some cases, you may still be required to pay the interest on the monthly payments.
When Should You Consider Car Payment Deferral?
A car payment deferral may be ideal for you if you’re experiencing a temporary financial hardship. This can include things like job loss, a medical issue, or an unexpected expense that’s straining your finances. In cases like these, a car payment deferral can provide you with relief during this time.
By deferring your car loan payments, you can free up your cash flow to ensure that all other bills are paid so you don’t fall behind and make your financial situation even worse than it already is.
However, car payment deferrals are suitable only if you’ll eventually be able to resume making payments in the near future. This is because you’ll eventually be required to start making your payments again at some point. This is more of a temporary solution. As such, if your financial issues are more long-term, then it may be wise to explore other options.
Advantages Of Car Loan Payment Deferrals
Deferring your car loan payments comes with a few perks:
- Temporary Financial Relief: By postponing your car loan payments, you can use any money you have to cover other important expenses, like rent, mortgage, groceries, or utilities.
- Avoid Loan Default: A car payment deferral arrangement can help you avoid missing loan payments and eventually defaulting on your loan.
- Protect Your Vehicle: By avoiding default, you can protect your vehicle from repossession.
Disadvantages Of Car Loan Payment Deferrals
Car loan payment deferrals may be helpful, but there are potential downsides to consider:
- Interest Continues To Accrue: For the most part, the interest on your loan will continue to accumulate during the deferral period, which can increase the total cost of your car loan.
- Extended Loan Term: By adding deferred payments to the end of the loan term, you may find yourself with a longer loan term, which means it could take longer to pay off your loan.
- Potential Impact On Your Finances: Deferring car loan payments can lead to higher costs later on if you don’t manage your finances responsibly.
Tips For Handling Your Finances During A Car Payment Deferral
If you plan to take advantage of a car payment deferral arrangement, consider the following tips to effectively manage your finances during this time:
- Create A Budget: Use your deferral time wisely to manage your finances and make sure that essential expenses are covered.
- Save Up: Set some money aside to make sure you’ll be able to cover your car loan payments once the deferral period ends.
- Don’t Take On New Debt: Don’t apply for new credit accounts to avoid adding unnecessary financial strain.
- Keep Tabs On Your Credit Report: Check your credit report on a regular basis to make sure your deferred payments are not reported as missed payments to the credit bureaus.
Alternatives To Car Loan Payment Deferrals
If a deferral isn’t suitable for you or you don’t qualify, consider these alternatives:
Refinance Your Car Loan
Auto loan refinancing involves taking out a new loan to repay the existing balance of the current loan. This is a feasible way of spreading out the costs of repayment, as your new loan would be for a lower amount than the original loan.
This is because you’ve already paid a portion of the original loan, so now you’re just refinancing the remaining balance to take advantage of more affordable monthly payments. You may also get a new payment due date after refinancing that is more suitable for your short-term cash flow needs.
When refinancing your car loan, your vehicle will likely be used as collateral. As such, if there is very little or negative equity in your car loan, it may be best to avoid refinancing options.
Modify Your Loan Terms
Speak with your lender to see if they would be willing to revamp your loan. You may be able to negotiate the loan terms, such as reducing your interest rate or extending the loan term to keep monthly payments low. Keep in mind that this may be an option only if your account is in good standing.
Scale Back On Your Expenditures
It may be necessary to cut back on your spending to free up money for your car loan payments. This may be possible if you tend to spend your money on leisurely items, like subscriptions and entertainment.
Sell Your Car
If you can’t afford your car loan payments, perhaps selling the vehicle and using the proceeds to pay off the loan may be your best option.
What Happens If I Miss Payments Without A Car Loan Deferral?
If your lender won’t provide any leniency toward your monthly payments and you miss your car payments, you may be at risk of defaulting on your car loan. Lenders will typically wait three or four months before moving to repossess your vehicle or sending your account into collections. Not only will you risk losing your car, but your credit score could also take a hit.
Final Thoughts
Car loan payment deferrals can provide you with relief if you’re going through financial hardship. But before you choose this option, be sure that you understand how deferrals work, as well as the pros and cons. Before considering a deferral, speak with your lender and find out what your financial obligations will be in the future, particularly when it comes to accrued interest.
