What is an auto loan hardship program?

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 in such a situation is to worry about defaulting on your auto loan or losing your vehicle because you can’t keep up with payments.

The good news is that some lenders offer auto loan hardship programs to help you through these tough times. Program benefits may include an extended repayment term, a lower monthly payment or interest rate or even a temporary payment pause.

Learn more about auto loan hardship programs, how to qualify and other options for auto loan relief.

How auto loan hardship programs work

Some lenders offer auto loan hardship programs or similar financial relief to those struggling with their monthly car payments. These programs are designed to help borrowers make their payments while recovering from an unexpected financial emergency.

Specifics vary by program, but these are some of the most common options:

• Changed payment date. Some lenders will let you change your payment due date. This can help if you frequently pay late because the due date occurs before you get paid.
• Deferment or forbearance. This option lets you temporarily skip or pause your payments. Interest will still generally accrue during this period. You could pay more on your loan.
• Interest-only payments. Another option is to pay only the interest until your finances are back on track.
• Lowered interest rate or monthly payments. You may get a lower interest rate and smaller monthly payments through auto refinancing. Refinancing may mean a longer payment term, resulting in more interest accumulating. However, smaller payments may keep you from defaulting.
• New payment plan. You may be able to ask for a payment extension or set up a new plan with your lender to catch up on any missed payments. The drawback is that you’ll still have to make regular payments while keeping your balance current.

Auto loan hardship programs can give you some breathing room and help you avoid defaulting on your car loan. They can also minimize late fees and other charges incurred due to missed payments.

Hardship programs also can protect your credit score against dings — a huge plus considering 35% of your score is based on your payment history.

An auto loan hardship program does not necessarily lower your actual debt. It might simply reduce or temporarily delay your payments.

“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 — they will agree to reset the next due date and extend out the maturity date,” says Thomas Holgate, vice president of auto refinance at Way.com. “So your 72-month loan on the calendar 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. Even if you’ve fallen behind, it doesn’t hurt to reach out and ask about your options.

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.

These popular 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.
• Ally Bank: Ally offers auto loan refinancing, which could lower your monthly payment or annual percentage rate (APR). Loan modification can change the terms of your current loan.
• Bank of America: This lender also offers auto loan refinancing. If you’re a Preferred Rewards member of a high enough tier, you could qualify for an even lower APR.
• CarMax: With CarMax, you could get a payment extension or customized payment date.
• Carvana: Through Carvana’s third-party loan servicer, Bridgecrest, 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.
• LendingTree: While LendingTree does not offer a hardship relief program, it can connect you with lenders that do. Depending on the lender, you could qualify for auto loan refinancing or other financial assistance.
• PenFed Credit Union: This lender lets you skip one payment per 12-month period. You may be able to request an extended loan term as well.

There are several things to watch out for when choosing a program, including fees and tacked-on interest charges.

“I would avoid lenders who try to collect a lot of fees upfront. Many lenders will try to get everything they can out of you at that time, so watch out for a lot of processing and fee payments,” says Holgate. “I encourage everyone to try to find a company that will maybe stop interest from accruing during a hardship period so you don’t find yourself at the end of it with hundreds of dollars of interest that can take months to pay back.”

How to qualify for hardship assistance

Every lender has different requirements. Some programs require proof of income to qualify for hardship assistance. Other lenders may only offer relief to current customers.

Before you enroll in a hardship relief program, research different lenders — starting with your own — to see what’s available. Once you’ve narrowed your options, reach out to your top lenders. They can tell you their program requirements and how to start the process.

Generally, you can apply for hardship relief on the lender’s website. You’ll need to provide certain information and documentation verifying your situation during the application process. This may include:

• Loan details like the remaining balance, interest rate or APR and payment history
• Vehicle make, model, year, mileage and condition
• Proof of income like W-2s, bank statements, proof of income or a termination letter from your employer
• Personal identification documents

Depending on the hardship relief program, you may also need to meet minimum income, credit score or debt-to-income ratio (DTI) requirements. Along with this, some lenders won’t offer payment extensions if you’re already behind on payments. Keep this in mind when researching your options.

After applying for an auto loan hardship program, all you can do is wait. 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.

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.
• Find other ways to lower your loan payment. Refinancing or trading in your car for a cheaper one could get you a smaller monthly payment.
• 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 nonprofit or public organizations could help.
• Pay down other debts. By paying down other debts, you can free up some cash for your auto loan.
• Redo your budget. If you’re struggling with payments, look over your budget. Cut back where you can and put that money toward your car payment instead.
• Refinance with a cosigner. Having a cosigner can help you get better rates and terms when you refinance your auto loan. This could also mean smaller monthly payments.
• 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.
• Set up automatic payments. This can help you avoid late payments and excess fees.

The consequences of defaulting on an auto loan

Auto loan delinquencies have risen over the past several years. According to a 2023 Experian report, 3.43 percent of auto loans were 30 or more days delinquent in Q4 of 2023.

Delinquency is what happens when an account balance is past due — even if it’s only a day late. While you should still bring your account current as soon as possible, this isn’t quite as serious as defaulting on a loan.

Defaulting is when you continue to miss payments — usually for at least 30 or 60 days — and the lender decides you’re not likely to pay. If this happens, they may send the unpaid debt to a collection agency.

If you end up defaulting on an auto loan, here’s what could happen:

• Your lender could repossess your car — with or without notice.
• Your credit could take a serious hit.
• Your account could incur late charges.
• A debt collection agency could start contacting you to try to collect what you owe.

There could be other consequences, too.

“You will lose your ability to get a reasonably priced car loan at any point in the future,” adds Holgate. “Your next loan will have a much higher interest rate. Chances are you will have a deficiency balance that someone is going to come after you and sue you for, so then you also have that to deal with.”

The 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.