Defaulting on a car loan means failing to repay your loan as you originally agreed. Most lenders will declare your loan to be in default after 90 days of nonpayment and will report it as such to the major credit bureaus. The default becomes part of your credit history and affects your score.
A default can stay on your report for up to seven years. During this time, you will find it more difficult to secure traditional financing. The only avenue open to you may be "bad credit" offers that carry higher interest rates and fees. You will pay more for credit of all types, from mortgages to credit cards. Your insurance premiums may increase, and you could be turned down for renting an apartment. In short, defaulting on a car loan can affect many areas of your life. It's not a place you want to be.
The alternative is to seek a deferment from your lender before you end up in default. Getting a deferment means that payments are postponed for a certain period of time so you can catch up on your financial obligations. The goal is to get you in a position where you can resume making regular payments. Although the deferment will probably show up on your credit report, the effect on your creditworthiness is minimal compared to the costly consequences of a default.
You must take the initiative of requesting a deferment. This is no time to be shy. Explain your financial situation to your lender and provide any supporting information in a timely manner. The lender isn't obligated to grant a deferment, so be as cooperative and polite as possible. If your deferment is approved, you will sign an agreement detailing your obligations going forward. A processing fee is sometimes required, and the deferred payments are usually tacked onto the end of the loan. The agreement will spell everything out for you.
Keep in mind that a deferment doesn't absolve you of your debt or mean your lender is a pushover. It's your last, best chance to save your credit and your car, so take it seriously.