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.
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.