Consumers who might miss an auto loan or mortgage payment should not skip it even for a month and instead need to work with their lender.
Negotiating with the lender instead of ignoring the issue is the right strategy because a bank or credit union is more likely to work with the consumer and offer various payment options.
"It's a tough decision for anyone in the position where they have to pay one or the other," said Bruce McClary, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based nonprofit organization.
Some companies allow people to qualify for a forbearance, which provides temporary relief from their full payment, he said. While it is not common, some lenders will allow the consumer to skip a couple of payments, but those installments still need to be made up within their current loan term.
"If you anticipate difficulty in making your payment, proactively contact your lender," said Greg McBride, chief financial analyst for Bankrate, a NewYork-based financial data and content company.
The lenders might be able to waive late fees, refinance the balance or create a loan modification, but only if the consumer faces the problem.
"You can't hide from this and hope it will go away," he said.
While consumers might be a temporary reprieve, any payments you miss will have to be paid.
"Lenders won't permit you to let your loan run one month behind and just tack the payment on at the other end," McBride said.
Pay Your Auto Loan First
Repossession is more likely to occur if you miss the payment on an auto loan and lenders are less lenient.
In some cases, the bank will repossess the vehicle immediately after a payment is missed, said McClary. Lenders are often open to options and some of them want to avoid the extra expense of repossessing your car and could allow you to defer a payment, he said. Another option they might offer is to refinance the loan for more affordable payments.
"Anyone considering missing a vehicle payment had better be sure what their loan agreement indicates," he said. "Forbearance may be an option with some auto lenders, so it always pays to be proactive and ask before deciding to skip a payment."
Skipping Mortgage Payments
Mortgage lenders are often more tolerant if you are late with a payment or miss one because the timeline for a foreclosure is longer.
Avoid missing the second payment because that puts the homeowner even closer to a potential foreclosure. A foreclosure typically cannot start until your mortgage is at least 120 days past due, said McClary.
"It is best to have a conversation with a HUD-approved housing counselor at a non-profit agency before taking the irreversible step of skipping a mortgage payment," he said. "They may be able to find a long-term solution to help make home ownership more affordable and sustainable."
Mortgage lenders give generous grace periods that often last until the middle of the month and many of them will not report that the payment is late to the three credit bureaus until it has been 30 days.
Some lenders will work with homeowners on a payment plan for special circumstances such as starting a new job. In those cases, consumers can obtain a forbearance agreement for a temporary hardship granting the option to lower or eliminate payments for a short period of time.
Two federal government programs were founded in the aftermath of the 2008 housing market crash and global financial crisis and their goals are to help struggling homeowners. The Home Affordable Modification Program or HAMP assists homeowners who have missed payments and are in danger of a foreclosure and will help them obtain refinancing, which will help them make their monthly payments. The second, known as the Home Affordable Refinance Program, or HARP, helps homeowners who have not missed any payments yet, but do not have much equity in their home or owe more on their mortgage than the home's current value. This program assists consumers who have loans owned by Fannie Mae or Freddie Mac.