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 choices by offering you interactive tools and financial calculators that provide objective and original content. We also allow users to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this website are provided by companies who pay us. This compensation could affect how and when products are listed on this website, for example, for example, the sequence in which they be listed within the categories of listing, except where prohibited by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does affect the content we publish or the reviews you read on this site. We do not contain the vast array of companies or financial offerings that could be available to you. KDP/Getty Images
4 min read Published on October 27, 2022.
Written by Allison Martin Written by Allison Martin’s career began more than 10 years ago as a digital media strategist. She’s been published in numerous prestigious financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch The editor is Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to manage their finances with concise, well-researched and precise information that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate guarantee
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Therefore, this compensation may affect the way, location and when products appear within listing categories, unless it is prohibited by law for our mortgage home equity, mortgage and other home loan products. Other factors, such as our own website rules and whether a product is available in your region or within your personal credit score may also influence the way and place products are listed on this site. Although we try to offer the most diverse selection of products, Bankrate does not include details about each credit or financial product or service. Are you experiencing financial hardship and struggling to afford your car payment? If your lender provides modifications on car loans, you may be able to get some needed relief. Loan modification involves adjusting the amount of your monthly payments, due date or sometimes the interest rate. If you’re behind on payments, these options could help you avoid the damage to your credit score and having your car repossessed. What is a car loan modification can you do? as the name suggests the term “car loan modification entails altering 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 best for you budget. It’s also possible to get an , which stretches the amount of your loan out, allowing you to reduce the monthly payment. However, the extended repayment time is also a sign that you pay more interest to the lender has more time to collect payments from the borrower, meaning you’ll be paying more in interest, unless you get back on track . Loan modification is not readily available to all borrowers, however. Though lenders tend to be wary of repossessing vehicles of those who have defaulted on their loans and you’ll need to convince them. Part of that is convincing your lender that you will not be able pay back what you owe , unless they accept a modification to your loan. This could involve the submission of financial documents to show you are experiencing difficulties. How to get a car loan modified ? You’ll need to contact the lender who created this loan in person to talk about your situation and determine your possibility of an loan modification. Be mindful that lenders will generally review your past payment history prior to making a decision. It’s important to prove your past performance as a good customer and have managed your loan in a responsible manner. However, if you’ve been late on payment in the past it might be a bit more challenging for you to persuade the lender to modify your loan. In any case you must adhere to these guidelines to begin the process. Make contact with your lender immediately. Notify your lender that your auto loan payments are no longer feasible and you are at risk of falling behind quickly. Tell them about your situation and the reason you’re having difficulty making payments. The representative can offer temporary options for relief but you must ask to speak to someone who can further assist you as you’re seeking an alternative that lasts. It’s best to state that you would like to keep the vehicle but require assistance in achieving that goal. Be specific, and use a friendly tone throughout the phone call. Make your request in writing If loan modification is possible in most cases, you’ll be required to make your request in writing. You’ll submit the request to the lender, along with proof of your hardship and any other documents or information that the lender requires. You must provide the lender the most detailed information possible regarding your circumstance. If you lost a job or had a major or unexpected change in your life you should include this details in your hardship letter. It is an excellent idea to explain how the modification will help, such as permitting you to continue making payments or making payments on time. Your lender might also require documents related to finances, such as the copies of your monthly bills , statement from your bank or stubs. Confirm the receipt of your hardship request After you have turned all of the required documents into the lender, the process of waiting to hear back from the lender commences. If you’re not hearing back take care to pay what you can, as repossessions can occur in the meantime you’re waiting for an answer on loan modification. Keep the person who is helping you with the modification up-to-date, explaining that you’re trying to make payments even amid financial challenges. How to know if you should modify your car loan Think about modifying your car loan when your financial situation has abruptly changed due to an unexpected job loss, temporary layoff or furlough, medical emergency or another event that is out of your control. It may also be a prudent option if you’ve recently suffered a drop in wages. You might also want to consider an loan modification in the event that your car is worth less than the amount you owe. This means you’re . Selling it to get an easier to afford vehicle could be a challenge and could end up costing you a significant amount. Auto loan modification and. refinancing It’s simple to confuse the auto loan modifications with refinancing, however both aren’t identical. Both can possibly get you lower payments. However, unlike auto loan modification, refinancing your loan will require you to swap the current loan for a new one with different conditions. You’ll probably need excellent or exceptional credit score to be eligible for the loan, and you’ll need to go through the same application procedure like you did when you got your current loan. A majority of lenders require that the mileage on your car does not exceed 100,000 miles, and you are unlikely to be eligible for a loan if your car is more than 10 years old. If your application for the new loan is approved, the lender will pay off the old loan, and you’ll resume your payments to the current lender. With a loan change, you’ll have to work with your current lender throughout the entire process. The bottom line It can be stressful when you cannot afford your car payment and aren’t in a good situation to refinance but you don’t have the option of going without a car. Consider reaching out to your lender to request a loan modification. Consider requesting a lower monthly payment and a reduced cost of interest, and the option of a different due date to allow you to pay on time. If a modification isn’t an alternative, you may want to consider other programs that will help you find relief until you get your finances back in order. Find out more
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Allison Martin’s writing began over 10 years ago as a digital content strategist, and she’s since been published in a variety of top financial publications such as 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 editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched details that cut complicated topics into digestible pieces.
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