HOUSTON – As many people figure out how to pay the bills with no income, some may consider asking their lender to put their car payments on pause. Before you sign a deferral or forbearance agreement, you should know there are pros and cons.
- Freezing your car loan for one to three months while you are looking for another job or waiting for unemployment benefits buys you some time and helps you avoid late fees and possible repossession.
- Lenders pause your payments, but the interest on your loan is still growing. Usually, when you begin your payments again, your monthly note is higher because of the extra interest.
“The more you put it off or extend the term of that repayment, the longer period of time you’re going to be driving upside down, “ said Bankrate’s Chief Financial Analyst Greg McBride. In other words, you’re driving a vehicle that you owe more than what it’s worth.”
You have other options
- McBride said if you know will not be able to make your next payment, call your lender and ask if they can help you out. Don’t just miss a payment.
- If you don’t know when you’ll be able to afford your current vehicle, downsizing may be a better option than freezing your payments and then facing a bigger note. Can you trade your vehicle in for something less expensive?
- Return your vehicle or discuss returning the vehicle to the lender in lieu of repossession.
Since so many people will need help, lenders may get creative in how they handle these deferments. Make sure you know what you’re agreeing to before you sign anything.