What is a deferred payment?
A deferred payment is a payment that is postponed to a later date. When it comes to auto loans, there are different ways to use deferrals.
Deferred payment incentives
Offers and incentives can take many forms when it comes to buying a car. Typically, they are offered on new cars, and one form they can take is a deferred payment incentive. An example of this is a “no payment for 90 days” agreement. A deal like this might seem like a decent move, but those three months of payments don’t just go away.
They are usually added at the end of your loan or split between your remaining loan payments. Either way, the 90 days of payments you would have made in the first three months of your loan still lag behind in interest. This means that you are actually paying more than you would have made by making those first three payments.
Similar to a deferred payment arrangement, a deferred down payment can seem like a good solution if you can’t quite find the money to make the down payment on the vehicle you want. Likewise, the plan can be more difficult than it is worth.
Deferred payments are not very common. In many cases, especially those whose borrowers have poor credit, a down payment is required. If you are considered a bad credit borrower, you usually have to pay at least $ 1,000 or 10% of the vehicle’s selling price.
If you meet all the conditions but don’t meet your down payment requirement, some lenders allow you to defer the amount that you cannot yet cover. The dealership usually collects a post-dated check and credit card number from you, which will be charged at a later date. If you can make it work, it can be helpful.
However, if you have any doubts about complying with this deferred down payment arrangement, then don’t. In that case, it might be better to wait a month or two to save the rest of your required down payment and return to the dealership with cash on hand.
Deferred payment programs
Unlike deferred payments and incentive agreements, both of which occur at the start of your car loan, deferred payment programs are designed to help borrowers who are having difficulty. These plans delay your payment, allowing you to skip a certain number of payments, typically no more than three (90 days), although this varies by lender.
The skipped payment (s) are usually added at the end of your loan, and interest continues to accrue. This can be a great option if you’re just having a hiccup or something unexpected happens that disrupts your budget. Not all lenders allow deferral, but you have a better chance if you let your lender know at the first sign of trouble, rather than waiting until the last second.
Need a more affordable vehicle?
If you are in a position where any kind of deferral seems like a good idea, maybe it is time to buy something more affordable. It’s always a better bet to build a budget that you can comfortably stick to than having to postpone payment and hope for a better situation ahead.
If you have bad credit and aren’t sure where to turn for your next car loan, we want to help. TO Auto Express Credit we work with special finance dealers across the country and want to put you in touch with one in your area. To start the process, simply fill out our fast, free and secure auto loan application form.