Are deferred payment incentives worth it?

Deferred payment incentives consist of pushing back your first monthly car loan payment(s) within a specified period of time. It may seem like a lot, but is it worth it? Here’s an overview of what a deferred payment program does and whether it might be a good or bad idea when buying a new car or truck.

What is a deferred payment incentive? When you consider something like a deferred payment incentive, it sounds appealing. These offers are usually for new cars and give borrowers the option to postpone their first payment with offers such as “no payments for 90 days” or “no payments for six months”. Many car manufacturers use these incentives to attract buyers.

If you don’t have good credit, however — a FICO score of 670 or better — you may not qualify for a deferred payment incentive. But if you do, is a deferred payment worth it? It depends.

If you’re more interested in not having to make a payment right away than you’d save in interest charges, it can definitely be worth it. But, if you prefer to save yourself some money, cutting down your amount owed as quickly as possible is the way to go.

What happens to deferred car payments? With a deferred payment incentive, even if you’re not currently making payments, you still have to make those payments eventually, they don’t disappear. Typically, payments are added at the end of the loan term or split among your remaining payments, making them higher than if you had made those initial payments from the start.

What is really happening during the time your payments are deferred is that your balance is earning interest. Auto loans are generally simple interest loans. This means that interest charges accrue daily and the more you owe, the more interest you have to pay.

Are you eligible for a deferred payment bonus? Deferred payment programs are not available to everyone. In fact, this is one of those well-qualified buyer situations that are typically offered by a captive lender. Captive lenders are the financial arm of a specific automaker, and to work with them to secure this type of deal, you often need good or excellent credit.

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