What Is An Auto Loan Hardship Program?

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No matter how prepared you are, a financial crisis — like a lost job or medical emergency — could still catch you off guard. The last thing you need is to worry about defaulting on your auto loan or losing your vehicle because you can’t keep up with payments.

Fortunately, many lenders offer auto loan hardship programs to help you postpone or defer your payments for a few months. Not every lender offers a hardship program, and it may mean paying more for your loan overall, but it can provide some relief during a crisis.

How auto loan hardship programs work

An auto loan hardship program does not necessarily lower your actual debt, but it can give you some breathing room and help you avoid defaulting on your car loan or paying late fees. These programs are designed to help borrowers make their payments while recovering from an unexpected financial emergency. They may also protect your credit score — a huge plus considering 35 percent of your score is based on your payment history.

“Typically, auto loan hardship programs still get someone to make half a payment. So if your payment was $400 and you paid $200 — which all goes to interest because they are typically past due — [your lender] will agree to reset the next due date and extend out the maturity date,” says Thomas Holgate, vice president of auto finance and insurance at Way.com. “So your 72-month loan may turn into a 76-month loan.”

If you need hardship relief, your best bet is to contact your lender as soon as possible to explain what’s happening and what you need. Ideally, you’ll do this before your first missed payment so you have time to work something out before you fall behind. But even if you’ve already fallen behind, it doesn’t hurt to reach out and ask about your options.

Types of auto loan hardship programs

Specifics vary by program, but these are some of the most common options when you’re looking for payment relief on your car loan.

What to look out for when choosing an auto loan hardship program

There are several things to watch out for when choosing a program, including fees and tacked-on interest charges. To illustrate, VyStar Credit Union charges current customers a $15 monthly fee to take advantage of the Skip a Pay Option. Others don’t charge a fee at all, but this may not be the case if you choose to go with a new lender.

If you decide to go with your lender’s hardship program, the terms of the agreement are binding unless you opt to refinance later on.

Lenders that offer hardship assistance

Many lenders will offer hardship relief because they still want to collect some of what they’re owed. However, not all lenders are as willing to work with their customers as others.

Even those that do offer hardship programs will have individual options, terms and requirements. Carefully review your options to see what best suits your needs. If your current lender doesn’t offer relief, you might need to go through another one that does by refinancing your auto loan.

These lenders provide some form of hardship relief:

• Alliant Credit Union: The Consumer Loan Modification program gets you a lower interest rate and payment for up to six months. The Payoff Program lowers your interest rate and monthly payment amount over a set term until you pay off the rest of your loan. You may need to fill out an application and provide proof of income.
• CarMax: With CarMax, you could get a payment extension or a customized payment date.
• Carputty: Although the Carputty website doesn’t detail its hardship program, it does mention that if you are having difficulty making payments, you should contact them, and they’ll do everything they can to help you through it.
• Carvana: Through Bridgecrest, the third-party loan servicer for Carvana, you may be able to skip a single month’s payment. Your loan will still accrue interest during this time. The skipped payment will be tacked onto the end of your loan.
• LightStream: Through Truist, you can apply for auto loan modification with LightStream for a potentially reduced rate, extension of repayment term, different type of loan or a combination of all three.
• PenFed: PenFed allows you to skip one payment per 12-month period. You may be able to request an extended loan term as well.

How to qualify for hardship assistance

Every lender has different requirements. Some programs require proof of income to qualify for hardship assistance, while other lenders may only offer relief to current customers. Here’s how to get started:

1. Do your homework. Before you enroll in a hardship relief program, check what your lender offers. Depending on the hardship relief program, you may also need to meet minimum income, credit score or debt-to-income ratio (DTI) requirements.
2. Apply for assistance. Generally, you can apply for hardship relief on the lender’s website. Be prepared to provide supporting documentation if requested.
3. Receive a decision. Someone from the lender’s side will review your application and, if necessary, request additional information or documentation. The timeline varies, so be prepared to continue making payments.

The exact process will depend on the lender that services your auto loan. Reach out to its customer service team to learn what you’ll need to do or submit for hardship assistance.

• Documentation requirements
  

Other options for auto loan relief

Auto loan hardship programs can be helpful, but they’re not right for everyone. You might find that you don’t qualify for the one you need. Or you might find that the cost is too great.

Whatever the case, here are some other options for auto loan debt relief:

• Ask for help: Consider asking a close friend or family member for financial assistance in the short term. Make sure you pay back any money you borrow as promised.
• Look into debt cancellation or suspension: This may be an option if the owner of the vehicle is unemployed, has a qualifying disability, has endured a financial hardship or has passed away.
• Look into other hardship relief programs. If you’re falling behind on everyday expenses, certain nonprofits or public organizations could help.
• Redo your budget: If you’re struggling with payments, look over your budget. Cut back where you can and put that money towards your car payment instead.
• Refinance with a cosigner: Having a cosigner on your auto loan can help you get better rates and terms when you refinance, which could help you lower your monthly payment.
• Sell or downgrade your car: If your current car costs too much, selling or trading it in for a cheaper model could make sense. Check your car’s value and crunch the numbers to make sure it’s worth it.

Bottom line

Many lenders offer auto loan hardship programs to help borrowers manage their monthly payments while dealing with a financial emergency. Options include smaller monthly payments, a reduced interest rate, payment deferment and payment extension plans. Each lender has its own requirements.

If you don’t qualify for a hardship program, you might find relief in other ways, like auto loan refinancing or debt suspension. Consider your options carefully before choosing one, but don’t delay too long. Notify your lender of your situation as soon as possible to avoid late charges, damaged credit or other long-term consequences.