Sometimes a consumer finds herself unable to pay monthly car payments. There is an option referred to as a deferment that many banks offer.
Identification
In the case of a deferment, the lender allows the consumer to pay only the interest due for the month, and the principal is added to the end of the loan.
Function
Most banks require paperwork to be submitted to set up a deferment. The auto loan may have pre-arranged terms that limit the number of payments that can be deferred, and the circumstances under which a deferment will be approved.
Significance
It is possible that the bank will not report a deferment agreement as a negative credit event, but the consumer must verify with the bank to explain how a deferment is reported to the credit agencies before applying for a deferment.
Considerations
An option to a deferment is a forbearance, in which payments are skipped and moved to the end of the loan, but interest continues to accrue during the skipped payment period.
Misconceptions
Even if there are terms of a deferment outlined in the car loan, the bank has the option of denying a deferment.
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