A deferred payment is one that gets pushed back to a later date, typically to the end of your loan term. Borrowers that are going through financial struggles often take advantage of deferment programs to get through tough times, but how do these deferred payments impact your credit score? Let’s talk about it.
Deferred Payments and Your Payment History
Payment history is the most important part of your credit score, making up 35% of it. It would make sense that if you’re not making payments, since they’re deferred, that it would harm your credit score. Fortunately, that’s not the case!
Deferred payments are noted as such to the credit bureaus – Experian, TransUnion, and Equifax. For example, during the coronavirus pandemic, accounts were noted if there were in forbearance or deferment “using a special code that indicates the account has been affected by a declared disaster,” as reported by Experian.
Even in non-emergency situations, accounts in forbearance or deferment are reported as such to credit bureaus so the “skipped” payments don’t harm your credit.
Additionally, since the lender has to agree to the deferment plan, they aren’t supposed to report missed or late payments to the credit bureaus. Your account should remain current during the deferment period, which is typically around 30 to 90 days, depending on what the lender agreed to and what you qualified for.
If you are seeing missed or late payments being reported despite your car loan being in deferment, contact your auto lender right away and the credit bureau reporting the incorrect activity. You have the right to dispute inaccurate information reported on your credit reports and have it removed. You can also file a dispute online with all three credit reporting agencies.
How Auto Loan Deferments Work
To qualify for a car loan deferment, start by talking to your auto lender. Lenders often allow deferments for borrowers going through financial difficulties such as job loss, furlough, unexpected medical issues, or other emergency situations.
However, if you’ve already missed a payment or two (missed defined as at least 30 days late), or have a late car payment, then you’re not likely to qualify for a deferment plan. Your lender may also require you to complete a hardship letter, outlining why you need the deferment to see if your circumstances qualify for the pause in payments. Not every borrower in every situation qualifies for a deferment plan, but the sooner you contact your lender about your options, the more options you may have.
You should also know that not all deferment plans stop interest charges. You may be required to continue paying accrued interest during the deferral period, so check with your lender and review the language in your loan contract to cover all your bases.
Deferment Not an Option?
If deferring your car loan payments isn’t an option, then it may be time to get into a more affordable auto loan. Right now, trade-in values are very high due to low new car stock, and now may be the time for you to take in your used vehicle for something more affordable.
Here at Auto Credit Express, we’ve created a nationwide network of dealerships that assist borrowers in unique credit situations. We want to look for a dealer in your local area with resources for borrowers with credit challenges. Get started today by filling out our free auto loan request form, and we’ll get right to work!