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Car Loan Extensions

Car Loan Extensions

With inflation at a 40-year high and the cost of living increasing at the fastest pace in decades, many Canadians are feeling the financial squeeze. Household budgets are being stretched to the limit just to cover basics like food, housing, transportation, and utilities. Understandably, keeping up with car loan payments has become a struggle for some.


When you’re facing temporary hardship, is taking the option to extend your auto loan term a wise financial move or a recipe for trouble down the road? This question deserves careful thought before rushing into any decision. While a payment extension could provide short-term relief, it also carries risks that must be weighed.


In this article, we’ll explore the pros and cons of lengthening your car loan payoff schedule. You’ll learn when it could help or hurt, how to manage an extended loan, and alternatives to consider as well. Our goal is to provide a comprehensive guide so you can make an informed choice in a difficult situation.

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What Does Extending a Car Loan Term Mean?

Extending a car loan term means pushing back the maturity date of the loan so your payments are spread out over additional months or years. This lowers the monthly payment amount, but increases the total interest you pay over the full life of the loan.

Specifically, extending the term means you and the lender agree to change the original payoff date to a later date. For example, you may extend a 5-year loan to 6 years. This reduces the monthly principal and interest payment, but it also means you’ll make payments for an additional 12 months.

While a lower monthly payment provides short-term financial relief, the tradeoff is paying more interest charges over the long run. With a longer repayment period, the loan accrues more interest since the balance remains outstanding for a greater number of months.

Extending the term does not change the original principal balance you owe. You still have to repay the full amount borrowed, just over a longer timeframe. The lender benefits by earning more in interest income from you.

 

When Might a Car Loan Extension Help?

A car loan extension can provide temporary relief if you’re experiencing a financial hardship that makes your normal monthly payments difficult or impossible. Common situations where an extension may help include:

 

 

During these stressful times, the last thing you need is your vehicle being repossessed or your credit score being severely damaged due to missed payments. A loan extension gives you breathing room to get your finances back in order before resuming your regular monthly payments.

The lower monthly payments provided by extending your loan term can be much more affordable in the short term. This prevents you from missing payments and defaulting on the loan, which would have lasting negative effects. An extension allows you to keep your vehicle while giving you time to recover financially.

 

What Are the Downsides of Extending a Loan?

While a car loan extension may provide some temporary financial relief, there are some significant downsides to be aware of before moving forward.

The most notable risk is that you’ll end up paying much more interest over the full loan term. When you extend the length of the loan, you’re spreading the same principal amount over additional months or years. This gives the lender more time to charge interest fees, increasing your total borrowing costs.

For example, extending a 5-year loan to 6 years could add hundreds or even thousands of dollars in interest charges. Carefully review the impact on your total interest paid before agreeing to an extension.

There’s also a chance you could end up owing more than the car is worth, known as being “upside down” or “underwater” on the loan. As vehicles age, they depreciate in value. If your loan balance remains high because of the extension, you may find yourself upside down later in the loan term.

This makes it very difficult to sell or trade in the car, since you would still owe more than you could get for it. Being upside down also makes it hard to qualify for a new car loan in the future.

Finally, a loan extension can enable bad financial habits if you don’t have the discipline to get your finances back in order. It’s critical to resume normal payments as soon as possible and avoid continually relying on extensions.

The temporary relief may lead some borrowers into a false sense of security. Without diligence to pay down the principal, you could end up deeper in debt than when you started.

 

Tips for Managing an Extended Car Loan

If you decide to extend your car loan term, be strategic in managing the extra months or years to minimize added interest charges and avoid upside down loan situations.

First, commit to making your new lower monthly payments on time every month. Payment history is a major factor in your credit score, so don’t let relief today damage your score long-term. Set payment reminders and automate payments from your bank account if it helps.

Next, look for opportunities to pay extra principal on the loan whenever possible. Even an extra $20 or $50 can make a difference over time. Creating a separate savings account just for extra principal payments can help you consistently build up funds to put toward the loan.

Once your finances improve, explore refinancing options to get a better interest rate or shorten your remaining loan term. Just a 1-2% drop in APR can save thousands in interest. Run the numbers to see if refinancing makes sense based on any fees.

Finally, if you find yourself severely upside down on the loan, it may make sense to sell the car and eliminate the debt. You’ll take a loss and still need to come up with the difference to pay off the loan, but it removes the long-term burden. Just be sure to run the numbers to confirm selling is your best option.

 

Ask Your Lender About Hardship Options

If you’re having trouble keeping up with your car payments, the first step is to reach out to your lender. Most auto lenders offer some type of hardship program or options to provide temporary financial relief. Here are some of the most common options to ask about:

 

Payment Extensions

Many lenders allow you to extend your next payment by a month or two. This gives you more time to get your finances back in order before the next payment is due. Payment extensions are often available for those experiencing a temporary hardship like a job loss or medical emergency.

 

Deferments

With a deferment, you can skip one or more monthly payments entirely. The skipped payments get tacked on at the end of your loan term. Deferments provide immediate payment relief, but keep in mind you’ll end up paying more interest over the full loan term.

 

Refinancing

If your credit has improved since you originally got the loan, refinancing to a lower interest rate could significantly reduce your monthly payments. You may also be able to extend the loan term to lower payments at the cost of more interest paid over time. Compare refinancing rates to see if there’s opportunity to save.

Every lender has their own criteria and options for hardship assistance. Be proactive and call to explain your situation. Many want to work with borrowers to avoid repossession. If you don’t ask, you won’t know what options may be available to help provide some temporary financial relief during difficult circumstances.

 

Weigh the Pros and Cons

Before moving forward with extending your car loan, carefully consider both the potential benefits and drawbacks. Looking at the full financial picture can help you make an informed decision.

On the pro side, getting an extension may allow you to avoid defaulting on your loan if you’re facing a temporary hardship. Defaulting can severely damage your credit score and lead to repossession. An extension provides short-term relief and more time to get your finances back in order.

However, extensions also have risks. You’ll wind up paying more interest over the full loan term. And if your car depreciates faster than you can pay down the loan, you may end up “upside down” owing more than it’s worth. This makes it very difficult to sell or trade in the car later.

Run the numbers to see how much extra interest you’d pay with an extended term. Also consider the car’s value – is it likely to depreciate faster than you can pay off the extended loan? Weigh the risks before moving ahead.

 

Explore Alternatives

Before deciding to extend your car loan term, take time to explore some other options that could provide financial relief without adding extra interest charges down the road:

 

Loan Modification

Ask your current lender if they can modify the loan terms to make your payments more affordable. This may involve reducing the interest rate, waiving late fees, or extending the repayment period slightly without a full refinance. Modifications are often easier to obtain than refinancing since you don’t need to reapply.

 

Refinancing with Another Lender

If your credit has improved since you took out the original loan, refinancing with another lender at a lower interest rate could significantly reduce your payments. Run the numbers to see if refinancing makes sense based on your credit score, remaining loan balance, and current interest rate.

 

Debt Management Plan

Non-profit credit counseling agencies can set up a debt management plan that consolidates your payments to multiple creditors into one monthly payment. This can make juggling bills easier. The agency negotiates with lenders on your behalf to potentially lower interest rates and waive fees.

Explore all options to find the best financial relief solution for your unique situation. Avoid jumping into a lengthy loan extension if alternatives like refinancing or loan modification could improve your situation without adding to your overall interest costs.

 

Improve Your Financial Situation

One of the best ways to get your finances back on track so you can resume normal car payments is to improve your overall financial situation. Here are some tips:

 

Increase Income With a Side Job

Consider taking on a side gig like rideshare driving, food delivery, freelance work, etc. to bring in extra income. Even an extra few hundred dollars a month could make a big difference in being able to afford your car payment. Having a second stream of income will give your finances breathing room.

 

Cut Expenses

Review your budget and look for areas to trim spending such as dining out, entertainment, subscriptions, etc. Even small cuts like making coffee at home versus buying it daily can add up. Downsizing housing or getting a roommate could also lower housing costs substantially. Live frugally for a little while until you get back on track financially.

 

Pay Down Other Debts

Try to reduce or pay off credit cards, personal loans, and other debts. This will lower your overall debt burden each month and free up cash to put toward the car loan. Consider debt consolidation or balance transfer options if they help you pay off debts faster. Minimize interest charges.

 

Build Up Emergency Savings

One of the best ways to avoid needing to extend your car loan in the future is to build up an emergency fund. Having 3-6 months of living expenses saved can help protect you when facing a temporary financial hardship like a job loss or medical emergency.

If you had at least a few months of savings set aside, you could likely continue making your regular car payments during a period of reduced income. You wouldn’t need to resort to options like skipping payments or extending your loan term.

Building an emergency fund does require dedicating some money each month to savings rather than other expenses. Start small if needed, like $50 or $100 per month. Once you have a good emergency cushion, you’ll have more security knowing you can pay your bills if you go through another unforeseen crisis.

Having emergency savings on hand can give you options beyond just extending your car loan when times get tough. You may be able to use a portion of your savings to get caught up on payments or pay off other debts burdening your budget. An emergency fund helps avoid desperation moves like high-interest payday loans or piling on more long-term debt.

 

Consider Selling the Car

If you’re severely upside down on your loan, it may make sense to sell the car and get a less expensive one. Even if you take a small loss on the sale, unloading the expensive car payment could free up room in your budget. Public transit or carpooling could also be viable options if available in your area.

Really take an honest look at whether you can afford the car you have. Is it worth struggling financially? Even if it’s your dream car, it may be time to downgrade until your finances improve. Crunching the numbers could reveal cheaper transportation alternatives.

Compare the cost of insurance, gas, repairs and monthly payments if you were to sell your current vehicle and get an economical used car. Run the math as well on relying on public transit or carpooling if possible. You may find hundreds of extra dollars each month to put towards other goals.

While no one wants to give up their shiny vehicle, the short-term sacrifice could really accelerate your ability to pay down debt and get back on solid financial footing. Then you can eventually get back into the car you really want when you’re in a better position to afford it.

 

Beware Debt Traps

When finances are tight, it can be tempting to take out additional loans or credit cards to cover expenses. However, this often leads to a debt spiral that becomes very difficult to escape. Payday loans in particular should be avoided at all costs, as their ultra-high interest rates make them nearly impossible to repay.

Payday loans seem like an easy fix when you need cash quickly. But their typical 400% APR means you’ll end up owing much more than you borrowed. For a $300 payday loan repaid in 2 weeks, you would owe over $350 including fees and interest. If you can’t repay it all, the balance rolls over and the fees keep mounting.

Before long, you can end up owing several times the original loan amount. This makes it very challenging to ever get out of debt. The payday lender profits massively while trapping you in an endless cycle. It’s much better to find other options like borrowing from family, credit counseling, or even bankruptcy.

The bottom line is avoiding new debt during a financial hardship. While tempting, taking on more credit or loans often makes the situation far worse in the long run. Cut expenses, increase income, and leverage community resources to get through without burying yourself further in debt.

 

Talk to a Financial Advisor

If your finances are in turmoil and you’re considering an extended car loan, it may be wise to consult an expert. A financial advisor can provide guidance and insight to help you make the best decisions for your situation.

A financial advisor will take a comprehensive look at your budget, debt, income, expenses and overall financial health. They can then provide customized advice on managing through this challenging time.

Some key things a financial advisor can help with include:

 

  • Reviewing your full financial picture
  • Creating a detailed budget and spending plan
  • Prioritizing expenses if money is extremely tight
  • Negotiating with creditors on your behalf
  • Exploring hardship programs like deferred payments
  • Analyzing the pros and cons of extending your car loan
  • Modeling different payment scenarios
  • Recommending alternatives like refinancing or voluntary repossession
  • Creating a debt management plan
  • Helping improve your credit
  • Getting you back on solid financial footing

 

A debt management plan through a non-profit credit counseling agency may be one option to consolidate payments and lower interest rates. This can make monthly bills more affordable but comes with risks like potential damage to your credit.

A good financial advisor will outline the pros and cons of any recommendations so you can make informed choices. Their expert guidance could prove invaluable in navigating this financial challenge.

 

Conclusion

Extending your car loan term can be a double-edged sword. On one hand, it lowers your monthly payments to provide temporary financial relief. This can help you avoid repossession or severely damaged credit until you get back on your feet.

However, a longer loan term also means you pay more interest over time. And you run the risk of owing more than the car is worth if you fall behind again or can’t resume normal payments. This could leave you trapped in an endless cycle of debt.

Carefully weigh all the pros and cons before deciding if a car loan extension makes sense for your situation. Don’t view it as an easy way out – you need a plan to improve your finances going forward.

There are alternatives as well. Talk to your lender about options like refinancing, deferment programs and selling the car. Then take control of your money – build emergency savings, increase income or cut expenses. With discipline and hard work, you can get back on track.

While it won’t be easy, you have the power to improve your financial situation. Avoid quick fixes and focus on the long term. Your future self will thank you.

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Questions About Extending Your Car Loan in Canada

A car loan extension in Canada allows you to defer one or more of your upcoming monthly car loan payments to a later date, essentially pushing back your loan’s maturity date. This provides temporary financial relief if you are struggling to make payments but intend to keep the vehicle long-term.

To qualify for a car loan extension from your lender in Canada, you typically need to be current on your loan with a good payment history. Most lenders will limit extensions to borrowers who have hit a temporary financial hardship, so you may need to provide documentation.

Most Canadian lenders will limit borrowers to 1 or 2 extensions over the life of the loan. You can usually only receive 1 extension every 12 months. Requesting too many extensions can signal to the lender you cannot truly afford the loan.

Getting an approved car loan extension from your lender will not directly hurt your credit score in Canada. As long as you adhere to the new extended loan terms, it will simply show as “deferred” on your credit file rather than “late” or “missed payment”.



Most Canadian lenders limit payment extensions from 1-3 months. Extensions beyond 3 months are rare except under special lender hardship programs. A longer extension keeps you obligated to the debt for more time, accruing more interest.

When you receive a car loan extension in Canada, you will continue being charged interest based on your original loan agreement. However, since extending pushes back the payoff date, you will likely accrue additional total interest over the entire loan term.

To apply for a car loan extension with your lender in Canada, call their customer service line. Let them know you are seeking temporary payment relief under their hardship program. Be prepared to provide evidence of hardship and sign an extension agreement adjusting your payment due dates.

Risks of extending a car loan in Canada include paying more total interest, owing more than the car’s value (being “upside down”), increased chance of default if financial hardship continues, and having less flexibility to sell/trade the vehicle until later.



Rather than repeatedly deferring payments through extensions, some experts recommend extending your car loan’s term length in Canada instead if possible. This lowers your payment by spreading out the loan balance over more time. A longer term can also mean more interest paid, however.

If you are struggling to pay your car loan in Canada, other options beyond an extension include refinancing the loan, voluntarily surrendering the vehicle, or pursuing alternative debt relief programs like consumer proposals or bankruptcy if in serious financial distress.

Yes, if you fail to make car loan payments in Canada after any extension period expires, the lender can legally repossess your vehicle. Once behind several months, your car is usually at high risk to be involuntarily repossessed or seized by the financing creditor.

If your financial hardship seems long-term, experts often recommend trading your financed vehicle for a much cheaper one in Canada if equity exists. This lowers payments to better match your current budget and circumstances. You pay off the old loan with the trade-in value downpayment.

Common documents lenders require for a Canadian car loan extension include recent pay stubs, bank statements, a hardship letter explaining your situation, proof of ongoing auto insurance coverage, and signed loan extension paperwork.

Likely not. A car loan extension itself typically does not directly impact your auto insurance coverage or rates in Canada. As long as you uphold the revised loan terms and maintain continuous insurance protection on the financed vehicle, an extension should have little insurance impact.

The best places to receive legal advice on car loan payment extensions in Canada include your provincial law society referral service, a licensed paralegal in your region, legal aid clinics, a lawyer referral service through your local Canadian Bar Association branch, or an accredited insolvency trustee.

Government relief options can include provincially-mandated payment deferrals during disasters, federal proposals giving low interest loans to distressed borrowers, lender hardship programs under federal oversight, and specialized provincial auto loan assistance programs. Availability varies by region.

Yes, various Canadian charities and non-profits like the Canadian Automobile Association and Credit Counselling Canada sometimes have hardship funds or consumer proposal grants that can provide limited financial help to borrowers struggling with auto loans or lease payments.

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