Should You Skip Your Car Loan Payment for the Holidays?

Senior man driving car full of presents.
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Have you seen the advertisements for skipping a car loan payment from your credit union or bank? Ever wondered exactly how it works? Skipping a loan payment over the holiday months has both pros and cons. Choosing the best option can take some thoughtful consideration.

How to Skip a Car Loan Payment

Lenders often portray skipping a loan payment as a perk. Many credit unions and even banks allow borrowers to skip a payment for the holidays.

Call and ask to see if yours is one of them. 

Pros of Skipping a Car Loan Payment

  • Frees up cash

How you spend your money is your business. Why does talking about money seem taboo? Because people can be so judgemental about how money is spent. Everyone has an opinion and it can be hard to agree. It is important to do what makes you happy, just understand what you are signing up for before making major purchases. If you are dying for a new tv or another splurge item, skipping a car payment could help you check it off your wish list. Depending on your credit score, a car loan often has a decent interest rate because the vehicle is used as collateral. So skipping a payment may be a better deal than racking up sky high-interest credit card debt.

A somewhat frivolous purchase should be considered a little more closely than more desperate situations. Unexpected medical bills or mechanical problems with your car or any other endless possibility of unexpected bills can try to ruin your Christmas, but taking a break on your car loan payment could save the holidays.

Cons of Skipping a Car Loan Payment

Nearly every financial advisor would tell you this is not a good deal. Paying a fee to skip the payment plus you still have to make the payment eventually and factor in interest really makes this hard to sell.

This option is definitely not getting you out of debt, that much is clear. But, it still has some merit.

Tips If You Do Decide to Skip the Payment

  • Depreciation: If you are not able to pay down your vehicle faster than your car is losing value, you will find yourself underwater on your auto loan. What happens if you are underwater? When you go to sell the vehicle, you will not be able to sell it for what you owe. You will have to cover the difference on your own which is frustrating to nearly every car owner. It can also be a factor if you are in a major accident totaling the vehicle. The insurance carrier will only cover what the vehicle is worth. If you owe more than it is worth, you would be responsible for the difference.
  • Gap Insurance: To protect yourself against being underwater on a car loan, gap insurance is highly recommended. Gap insurance is a coverage that is usually purchased at the time you buy a vehicle. Some insurance carriers offer loan/lease payoff coverage which is similar to gap but has limits on how much it will pay out. Both coverages will pay out when you have a total loss accident if you owe more than the vehicle is worth. Just because you skip a payment does not mean you automatically owe more than the vehicle but it is something to research.
  • Skipping a Payment Every Year: Skipping a payment this year might not seem like a big deal. Interest might be manageable, even the fee might seem small in comparison to paying your payment. Skipping a payment every year is a little bit different. The impact on your overall loan is much worse. Adding six months of payments to the end of your car loan can really add up. Cars are expensive enough as it is, adding all those extra fees and interest will only make financial problems last longer.

Whether you decide to skip a payment or not, it is up to you. Depending on your financial situation, it might make perfect sense to take the credit union up on their offer. It probably will not make or break your financial future. Educating yourself on how it all works suggests you are going to make a wise decision.