7/21/2020 | Team United
When you sign on the dotted line of a loan, you know that monthly payments are part of the payback plan. Sometimes, though, you might find yourself in need of extra cash and a skip payment option could help you out. Before you take a skip payment offer, make sure you understand how they work, and if it’s the right option for your financial situation.
Let’s start with the basics. A bank or credit union might offer you the option to skip a monthly payment on an installment loan—like an auto loan—if you meet certain criteria such as a 12-month payment history, up-to-date loan payments, and the requested submitted within seven days of the next scheduled payment (*check the rules for your bank or credit union). Some even let you make the skip request on your own without an offer. Keep in mind that a skip payment fee ranging from $25-$50 usually applies. Again, check with your bank or credit union for details.
Once a request is made and approved, you will not have to make a loan payment for the month selected. That means you could use that money on a vacation, for pre-holiday shopping, or use towards an unexpected expense. Skipping a payment can be a great tool for any of these short-term situations.
But remember, this is not payment elimination and skipping should not be used for long-term financial situations.
A skip payment option does not shorten the term of your loan, but rather extends it and could result in you paying more interest over the life of the loan. That is because interest continues to accrue on the unpaid balance during the time period the payment is skipped. Your following payments will largely consist of interest carrying over from the skipped payment.
It takes some planning and budgeting, but getting caught up on your loan after you’ve skipped a payment is possible—and a smart way to manage your money. Remember, skip payment options are designed to be a short-term, immediate-need financial tool.
By putting a little extra towards your payment for a few months after the skip, you will find your loan back on track.
If you aren’t able to increase your payment amount over time, look for opportunities when extra income becomes available—like a tax refund, overtime pay, or gifts—and pay the amount you need towards your loan.
The important point to remember—make sure you understand how skipping a payment will impact your loan terms and monthly payment amounts before you decide if it’s the right option for you. Talk with a representative from your bank or credit union and make a repayment plan that works for your situation.
As we’ve seen recently, there are a number of circumstances beyond your control that can significantly impact your financial life.
Opting to defer a loan payment for a month can not only help you adjust and plan for the new impact to your budget, but it can also help reduce stress due to incoming bills. However, if you think you might need a more long-term solution, it’s best to talk with a private budget counselor or representative associated with your financial institution.
They will be able to recommend other options and work with you to make sure you are doing what is best for your budget, your credit, and your family.