Car loan modification: What it is and how it works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. This allows you to conduct research and compare information at no cost and help you make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site come from companies who pay us. This compensation may impact how and when products are listed on the site, such as such things as the order in which they appear in the listing categories and other categories, unless prohibited by law. This applies to our mortgage, home equity and other home lending products. However, this compensation will have no impact on the information we publish, or the reviews that you read on this site. We do not cover the universe of companies or financial offerings that could be available to you. KDP/Getty Images
4 min read Published 27 October 2022
Written by Allison Martin Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital content strategist, and she’s since been published in several leading financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans Editor Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances by providing detailed, well-studied information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee
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Therefore, this compensation may influence the manner, place and in what order the products are listed within categories, except where prohibited by law for our mortgage home equity, mortgage and other products for home loans. Other factors, like our own rules for our website and whether the product is available in the area you reside in or is within your personal credit score may also influence the manner in which products appear on this website. We strive to offer a wide range offers, Bankrate does not include information about every financial or credit product or service. Are you experiencing financial hardship and are unable to pay your vehicle payments? If your lender provides modifications on car loans or loans, you might be able to get some much-needed relief. Modifying your loan means adjusting the amount of your monthly payments, due date or sometimes the interest rate. If you’re behind with your payments, these options could assist you in avoiding ruining your credit score or the possibility of having your vehicle repossessed. What is a car loan modification can you do? As the name implies the term «car loan modification is the process of changing the terms of your loan. The lender might agree to reduce the amount of your loan, delay your payments in the short term or change the due date so it works more in line with your financial plan. There is also the option of getting an , which extends the balance of your loan out, allowing you to reduce your monthly payments. But extending the repayment period also means the lender will have more time in collecting payments from you, so you’ll pay more in interest, unless you get back on track . Loan modification is not readily accessible to all loan borrowers, however. Although lenders are generally not fond of repossessing vehicles of borrowers who’ve defaulted on their loans, you’ll have to plead your case. The first step is convincing your lender that you will not be able to repay what you owe unless they accept a modification to your loan. This could involve the submission of financial documents to show that you’re facing hardship. How do you obtain a car loan changed You’ll have to contact the lender who initiated the loan direct to clarify the situation and determine possibility of the loan modification. Be aware that lenders generally review your past payment history prior to deciding. It’s beneficial to show the fact that you’ve been a responsible customer and managed your loan in a responsible manner. But if you’ve missed payment in the past and have a history of late payments, it may be a bit more challenging for you to persuade the lender to alter the terms of your loan. In any case you must adhere to these guidelines to start the process. Contact your lender right away Notify your lender that your auto loan payments are no longer affordable and you are at risk of falling behind in the near future. Be clear about the circumstances and the reasons you are struggling to make payments. The representative may share some temporary solutions, but you must ask to speak to someone who can help with an alternative that lasts. It’s a good idea to state that you would like to keep your car but need help accomplishing your objective. Make it clear, and use a calm tone during the call. Write your request down If a loan modification is offered in most cases, you’ll be required to submit the request on paper. You’ll submit the request to the lender along with evidence of your hardship as well as any other information or documents that the lender requests. Provide the lender as much detail as feasible about your circumstances. If you have lost your job or had a significant or unexpected life change you should include this information in your hardship letters. It is an excellent idea to explain how the modification will benefit you, like permitting you to continue making payments or make payments on time. Your lender might also require financial documentation such as copies of your monthly bills and bank statements or pay statements. Confirm that you have received your hardship application. After you have turned all of documents in, the waiting game to hear back from the lender starts. If you’re not hearing back make sure you pay as much as you can as repossession can still take place in the meantime you’re waiting for a decision on loan modification. Keep the team helping with your modification on the ball, letting them know that you’re trying to make payments even when you face financial hardship. What are the signs that you should modify your car loan Consider modifying your car loan in the event that your financial situation has abruptly changed as a result of a job loss, temporary furlough or layoff or medical emergency, or some other event that is out of your control. It could also be a wise decision if you’ve recently experienced reduced wages. You may also want to explore an loan modification in the event that your car is worth far less than what you owe. It means you’re . Selling it to get an easier to afford vehicle could prove to be rather challenging and could end up costing you a significant amount. Auto loan modification and. refinancing It’s easy for people to make a mistake when comparing with auto loan modifications with refinancing, but they’re not the same. Both can possibly get you lower payments. However, unlike auto loan modification, refinancing your loan is the process of swapping the current loan for a brand new one with different terms. You’ll probably need excellent or excellent credit to qualify, and you’ll have to complete the same application process as you did when you applied for the current loan. A majority of lenders require insist that the mileage of your vehicle doesn’t exceed 100,000 miles. You likely won’t be able to qualify when your vehicle is older than 10 years old. If an application to get a new loan is accepted and the lender will pay off your old loan, and you’ll resume payment with your new lender. However, with a loan modification, you’ll have to work together with the current lender through the whole process. The bottom line: It could be stressful when you cannot pay for your car and aren’t in a position to refinance, but don’t quite have the option of doing without a vehicle. You might want to contact your lender to request a car loan modification. Consider requesting a lower monthly payment, a decreased amount of interest or the option of a different due date to help you make payments on time. If you are not able to modify your payment option, there are other programs to help you find relief until you get your finances back in order. Find out more
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Written by Allison Martin’s work began over 10 years ago as a digital content strategist and she’s since been featured in various top financial media such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers to manage their finances with precise, well-researched and well-researched information that breaks down otherwise complex subjects into bite-sized pieces.
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