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.

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.

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 light fees. They may also can protect your credit score against dings — 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 refinance 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. Even if you’ve 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:

• 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 over the life of the loan.
• Interest-only payments: Another option is to pay only the interest until your finances are back on track.
• Reduced 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.

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 customized payment date.
• 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.
• PenFed: PenFed allows you to skip one payment per 12-month period. You may be able to request an extended loan term as well.

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. 

“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.”

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. 

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. Here’s how to get started:

1. Do your homework: Before you enroll in a hardship relief program, research different lenders — starting with your own — to see what’s available. 
2. Understand program guidelines: 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.
3. Create a shortlist of lenders: 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.
4. Apply for assistance: Generally, you can apply for hardship relief on the lender’s website. Be prepared to provide supporting documentation, as mentioned below, if requested by the lender. 
5. 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.

• Documentation requirements

  You will likely 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 and APR
  • Payment history.
  • Vehicle make, model, year, mileage and condition.
  • Proof of income or a termination letter from your employer.
  • Personal identification documents.

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 nonprofit 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 toward 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.

What are the consequences of defaulting on an auto loan?

Auto loan delinquencies have risen over the past several years. According to a 2024 Experian report, 3.12 percent of auto loans were 30 or more days delinquent in the fourth quarter of 2024.

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. If this happens, they may send the unpaid debt to a collection agency. In addition to taking a serious hit to your credit and paying late charges, your lender could repossess your car — with or without notice.

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.”

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.