The Impact of Defaulting on Auto Loan Payments
If you find yourself short on cash, you may be scrambling to cover the shortfall in your budget. One alternative you might explore is skipping one or more of your auto loan payments. Depending on the terms of your loan, you may be able to skip multiple payments when you're experiencing financial difficulties. However, when you skip an auto loan payment, it's essential to understand what happens to the skipped payment and how it impacts your loan.
The Truth About Skipping an Auto Loan Payment
The Logistics of Your Skipped Auto Loan Payment
When you skip your loan payment, it doesn't just disappear. Instead, what typically happens is the skipped payments get added to the end of your auto loan, extending your loan term. For example, assume that you have 20 more payments left on your loan and you skip 3 payments. Your lender will tack these missed payments onto the end of your loan so that your loan term is extended by 3 months.
Aside from extending your loan term, skipping your loan payments will also increase the total amount of loan interest that you pay. The longer your loan term, the higher your interest expenses. Occasionally, some lenders have a program where they'll pay your loan payment for you for a set period of time. These programs are rare and usually associated with the purchase of a new vehicle.
The Advantages of Skipping an Auto Loan Payment
One of the advantages of skipping an auto loan payment is that it gives you a temporary payment vacation without impacting your credit. Missed loan payments can quickly bring your credit score down. By arranging with your lender to skip your payments, you keep this from happening.
Another benefit of skipping your auto loan payments is that the interest rate for auto loans tends to be lower than other forms of debt (like unsecured credit cards). This is due to the fact that an auto loan is a secured loan where your vehicle serves as collateral for the loan. If you're going to have to extend the loan and pay additional interest, it makes sense to do so on a loan with an affordable interest rate.
Disadvantages of Skipping an Auto Loan Payment
Some lenders may charge you a fee for each loan payment that you skip. This is in addition to the interest that accrues on the loan. If you have to pay $25 to skip your loan payment, skipping 3 loan payments means that you'll pay an additional $75 in fees.
When you don't pay your loan, the interest begins to accrue. This means that the interest that you owe gets added to your original loan balance. Once you do start making your loan payments, it will take you longer to pay down the loan balance due to the accrued interest. This puts you at risk of becoming upside-down on your vehicle loan (owing more on your auto loan than your vehicle is worth).
Get an Affordable Auto Loan at CCCU
CCCU offers a variety of loan types for our members. If you’re looking for an auto loan at an affordable rate, contact us at 702-228-2228 today.