Car loan modification: What it is and how it works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make better financial decisions by providing you with interactive financial calculators and tools as well as publishing quality and impartial content. This allows users to conduct research and compare data for free to help you make sound financial decisions. Bankrate has agreements with issuers such as, 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 are from companies that compensate us. This compensation can affect the way and where products appear on this site, including for instance, the order in which they may appear in the listing categories and other categories, unless prohibited by law. Our mortgage home equity, mortgage and other home lending products. This compensation, however, does have no impact on the content we publish or the reviews you see on this site. We do not include the universe of companies or financial deals that might be accessible to you. KDP/Getty Images
4 min read Published 27 October 2022
Written by Allison Martin Written by Allison Martin’s career began more than 10 years ago as a digital content strategist, and she’s since been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Edited by Auto loans Editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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We are compensated for the promotion of sponsored goods and, services, or when you click on specific links on our website. So, this compensation can affect the way, location and when the products are listed within categories, except where prohibited by law for our mortgage or home equity products, as well as other home lending products. Other factors, like our own rules for our website and whether a product is available in your area or at your own personal credit score may also influence the manner in which products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about each credit or financial products or services. Are you experiencing financial hardship and are unable to pay your vehicle payments? If your lender offers modifications on car loans and you are eligible, you could be able to receive needed relief. Loan modification involves adjusting the amount of your monthly payments and due date, or even your interest rate. If you’re in debt on payments, these options could assist you in avoiding the damage to your credit score and having your car repossessed. What car loan modification means? like the name suggests, a car loan modification is the process of changing the terms of the loan. The lender may agree to lower the amount of your loan, delay your payments for a short period or change your payment due date so it works better for your budget. You can also get an , which stretches the amount that you loan out to lower the monthly payment. However, the extended repayment time will mean that the lender will have more time in collecting from you, so you’ll pay higher interest overall until you are back on track and . The option of loan modification isn’t accessible to all loan borrowers, however. Though lenders tend to be wary of repossessing vehicles of those who have defaulted on their loans and you’ll need to argue your case. The first step is convincing your lender that you won’t be able pay back what you owe , unless they consent to modifying your loan. This could involve the submission of financial documents to show that you’re experiencing hardship. How do you get a car loan modified You’ll need to contact the lender who created the loan in person to talk about your situation and determine your ability to qualify for the loan modification. Be aware that lenders generally review your past payment history before making a decision. It’s beneficial to show the fact that you’ve been a responsible customer and managed your loan in a responsible manner. However, if you’ve been late on payment in the past and have a history of late payments, it may be a little more difficult to convince the lender to modify your loan. Whatever the case follow these steps to start the process. Make contact with your lender right away Notify your lender that the auto loan payments are no longer affordable and you are at risk of falling behind in the near future. Tell them about your situation and the reason you are struggling to make payments. The representative might offer temporary options for relief but ask to speak with someone who can help you as you’re seeking a long-term solution. It’s helpful to mention that you’d like to keep your car but need help accomplishing that goal. Be specific, and use a calm tone throughout the phone conversation. Write your request down If loan modification is possible and you’ll usually be asked to submit the request on paper. You’ll submit the request to the lender along with evidence of your hardship and any other documents or information that the lender requests. You must provide the lender as much detail as possible regarding your circumstance. If you lost a job or suffered a major or unexpected change in your life you should include this details in your hardship letter. It is an excellent idea to describe how the change will help, such as permitting you to continue making payments or make payments on time. Your lender might also require documents related to finances, such as the copies of your monthly bills and statement from your bank or receipts. Confirm that you have received your hardship application. When you’ve turned all documents into the lender, the process of waiting to hear back from the lender starts. In the meantime take care to pay what you can since repossession could continue to occur as you wait for the outcome of a loan modification. Keep the person who is helping you with your modification up-to-date, explaining that you’re still trying to make your payments amid financial challenges. How to know if you should modify your car loan Consider modifying your car loan when your financial situation has suddenly changed because of an unexpected job loss, temporary layoff or furlough, medical emergency or another event that is out of your control. It might also be a wise decision if you’ve recently had a decrease in your earnings. It is also possible to explore the possibility of a loan modification in the event that your car is worth less than what you owe. It means you’re . Selling it to get a more affordable vehicle would make it a lot more difficult and can cost you a lot. A car loan modification and. refinancing It’s easy to make a mistake when comparing the auto loan modifications with refinancing, but both aren’t the same. Both can possibly get you a lower payment. But unlike the auto loan modification refinancing your loan is the process of swapping the current loan for a new one with different terms. It is likely that you will need good or excellent credit to qualify, and you’ll have to go through the same application process similar to the one you went through when you took out your current loan. Most lenders also will require that your vehicle is not more than 100,000 miles. You probably won’t qualify when your vehicle is older that 10 years older. When you apply for the loan is approved, the lender will pay off the old loan and you’ll be able to resume your payments to the current lender. But with a car loan modification, you’ll have to work together with the current lender through the whole process. The bottom line: It could be stressful if you can’t afford your car payment and aren’t in a good situation to refinance, but you don’t have the option of doing without a vehicle. You might want to contact your lender to request a car loan modification. Ask about reduced monthly payments, a decreased amount of interest or even an alternate monthly due date, if it will help you make payments on time. If modification is not an option, there may be other programs to assist you until you get your finances back on track. Learn more
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Allison Martin’s writing began more than 10 years ago, as a digital content strategist and she’s since been featured in a variety of top financial publications which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited 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 their readers feel confident to manage their finances by providing clear, well-researched facts that break down otherwise complicated topics into digestible pieces.
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