A deferred payment is a payment that's pushed back to a later date. When it comes to car loans, there are a few different ways deferments can be used.
Deferred Payment Incentives
Deals and incentives can take on many forms when it comes to car buying. Typically, they're offered on new cars, and one form they can take on is a deferred payment incentive. An example of this is a "no payments for 90 days" deal. A deal like this may sound like a decent move, but those three months of payments don't just disappear.
They're usually added to the tail end of your loan, or divided up among your remaining loan payments. Either way, the 90-days of payments you would have made over the first three months of your loan are still hanging out accruing interest. This means that you're actually paying more than you would have by making those first three payments.
Deferred Down Payments
Similar to a deferred payment deal, a deferred down payment can seem like a good way to go if you can't quite come up with the cash to complete the down payment on the vehicle you want. Also similarly, the plan can be more trouble than it's worth.
Deferred down payments aren't very common. In many cases, especially those with borrowers who have poor credit, a down payment is a requirement. If you're considered a bad credit borrower you're typically expected to put down at least $1,000 or 10% of the vehicle's selling price.
If you may meet all the qualifications, but fall short on your down payment requirement, some lenders allow you to defer the amount you can't cover just yet. The dealer usually collects a post-dated check and a credit card number from you, to be charged at a later date. If you can make this work it can be helpful.
However, if you have any doubt at all about meeting that deferred down payment arrangement, don't go through with it. In this case, it may be a better bet to wait a month or two to save the rest of your required down payment and return to the dealership with cash in hand.
Deferred Payment Programs
Unlike deferred down payments and incentive deals, which both happen at the beginning of your auto loan, deferred payment programs are designed to help borrowers who get in a pinch. These plans push back your payment, allowing you to skip a certain number of payments, typically no more than three (90 days), though this varies by lender.
The skipped payment or payments are usually added to the back end of your loan, and interest continues to accrue. This can be a great option if you just have a hiccup or something unexpected pops up to interrupt your budget. Not all lenders allow deferment, 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're in a position where any kind of deferment is looking like a good idea, it might be time to shop for something more affordable. It's always a better bet to build a budget you can comfortably stick to than to have to push back payment and hope for a better situation to come.
If you're dealing with bad credit and don't know where to turn for your next auto loan, we want to help. At Auto Credit Express we work with special finance dealerships throughout the country and want to connect you with one in your area. To get the process started simply fill out our fast, free, and secure auto loan request form.