Is it possible to pause my car loan repayments?

Is it possible to pause my car loan repayments?

Taking out a loan to buy a car is a financial commitment that most put a great deal of consideration into. Responsible borrowers do their due diligence and make careful calculations to ensure that their car loan repayments will fit comfortably within their budget.

There may come a time, however, when even the most cautious of borrowers experience an unavoidable blow to their finances, making it difficult to meet their previously manageable repayments.

If you’ve found yourself in this position, you may be wondering whether it’s possible to pause your car loan repayments until you get back on your feet. While there’s no one answer that’s applicable across the board, there are steps you can take and factors to consider that may help you to manage the situation as best you can.

Reach out to your loan provider

First thing’s first, get in touch with your car finance provider as soon as you can to communicate that your finances have been impacted, whether it’s due to a redundancy, unexpected illness or otherwise.

If you don’t act quickly, and end up missing a payment or two, you risk causing potentially avoidable damage to your credit score.

Depending on your personal situation, your loan provider may first request further details or documents proving your financial hardship, including:

  • A rundown of exactly what has negatively affected your finances
  • Evidence of why you’re in hardship, such as a medical certificate, if applicable
  • Information about your current income and major expenses
  • What amount, if any, you can afford to pay

Don’t be deterred, however, if you don’t have any or all of these details and documentation. It’s still important to reach out as a first step and find out what is needed to move forward.

Next, your loan provider will assess your situation and come back to you with how it is prepared to assist you. This could include offering to do one of the following:

  • Pause your loan repayments for a period of time
  • Pause only your interest
  • Negotiate flexible payment options
  • Extend the due date for your repayments
  • Waive fees

Keep in mind that the decision of whether or not you will be granted leniency of any kind is generally at your lender’s discretion. If they aren’t prepared to assist you in any way, consider getting in touch with a financial advisor for personal advice on how to manage your circumstances, and whether you may be able to appeal the decision.

You may also have other options you could consider, such as refinancing your loan or consolidating multiple debts into a single, potentially more manageable loan.

Consider your credit score

While you’re in the negotiation stage with your car loan provider, it’s important to remember that you will still be required to make your regular repayments in full and on time if you want to avoid having them recorded as late on your credit report.

In the instance that you are granted a pause on your repayments, or similar, be sure to confirm with the lender that they will cease reporting your payments as late, until the end of the specified deferral period.

Pausing your car loan repayments during an economic slowdown

Due to the substantial increase in borrowers facing financial difficulty as a result of the COVID-19 pandemic, banks and lenders have put in place additional measures to assist their customers during this time.

This may mean that they are offering more flexibility as well as more transparency in terms of how they may be able to assist you. Again, this will vary from one provider to the next, so it’s important to reach out to your lender directly or visit its website for more specific details.

If you are granted a car loan repayment freeze during this time, it might be a relief to hear that your credit score may be protected.

The Australian Banking Association (ABA) has stated that until March 2021, customers’ credit scores won’t be affected if they need to defer their loan repayments for up to six months due to COVID-19, provided they were up to date with their repayments beforehand.

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Learn more about car loans

What are loan repayments?

Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What are repayments?

Repayments are the regular payments you make to pay off your car loan. Repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

I’ve been denied a car loan before; can I still get car finance?

Even if you’ve been denied a car loan before, you might still be able to get car finance. The key is to make the right application to the right lender.

The ‘right’ application is one that makes you look like an acceptable risk, which might include things like improving your credit score, increasing your savings rate and accumulating a bigger deposit.

The ‘right’ lender is one that deals with borrowers like you. For example, while some car loan lenders only deal with good credit borrowers, there are others that specialise in bad credit or poor credit borrowers.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

Can I get a loan if I am on aged pension?

Yes, there are certain lenders that provide loans for people on aged pensions. Your viability for a loan will be assessed by a lender by your credit report and your income. They will also take into account any assets you have that you may want to secure the loan with. The better your credit score, the more likely you are to be accepted for a loan, and the lower the interest you will have to pay on that loan.  

If you have a bad credit rating and are on an aged pension however, don’t despair, because there are specialised lenders who still may be willing to provide you with a loan.