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 smarter financial decisions by providing you with interactive tools and financial calculators that provide objective and original content. We also allow users to conduct research and compare data for free – so that you can 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 site come from companies who pay us. This compensation may impact how and when products are featured on this site, including such things as the order in which they appear within the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other home lending products. However, this compensation will not influence the information we provide, or the reviews you see on this site. We do not cover the entire universe of businesses or financial offerings that could be available to you. KDP/Getty Images
4 min read. Published October 27, 2022
Written by Allison Martin Allison Martin Written by Allison Martin’s career began more than 10 years ago as a digital media strategist, and she’s since been published in numerous prestigious 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 since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched facts that break down complicated subjects into digestible pieces. The Bankrate promise
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So, this compensation can impact how, where and in what order products are displayed within the listing categories, unless the law prohibits it for our mortgage home equity, mortgage and other home lending products. Other factors, such as our own website rules and whether the product is offered in your region or within your own personal credit score could also affect the manner in which products appear on this website. While we strive to provide the most diverse selection of products, Bankrate does not include specific information on each credit or financial item or product. Are you experiencing financial hardship and struggling to afford your car payments? If your lender provides modifications on car loans, you may be able to get some needed relief. Modifying your loan involves changing the amount of your monthly payments and due date, or even your interest rate. If you’re in debt in your payments, these choices can help you avoid the damage to your credit score and the possibility of having your vehicle repossessed. What exactly is a loan modification means? like the name suggests it is a loan modification involves changing the terms of your loan. The lender might agree to reduce your , defer your payments in the short term or alter your due date to work more in line with your financial plan. You can also get an , which extends the amount of your loan out in order to reduce your monthly payments. However, extending the time for repayment is also a sign that you pay more interest to the lender will have more time in collecting from the borrower, meaning you’ll be paying more interest overall until you are back on track and . Loan modification is not readily accessible to all borrowers however. While lenders generally aren’t fond of repossessing their vehicles those who have defaulted on their loans, you’ll have to plead your case. The first step is convincing your lender that you won’t be able to repay the amount you owe until they agree to modify your loan. This could mean providing financial documentation to prove that you’re experiencing hardship. How do you obtain a car loan changed You’ll have to contact the lender who created your loan direct to clarify your situation and determine your ability to qualify for the loan modification. Be aware that lenders typically review your payment record prior to making a decision. It’s important to prove that you’ve been a good customer and have managed your loan responsibly. But if you’ve missed payments before it might be a little more difficult for you to persuade the lender to change the terms of your loan. Either way follow these steps to begin the process. Call your lender right away Notify your lender that the auto loan payments are no longer feasible and you could be in debt in the near future. Explain your circumstances and why you’re having difficulty making payments. The representative can offer temporary options for relief but ask to speak with someone who can assist with an alternative that lasts. It’s best to explain that you want to keep the vehicle but require assistance in achieving that target. Be specific, and use a friendly tone during the call. Make your request in writing If a loan modification is offered, you’ll typically be required to submit your request in writing. You’ll submit the request to the lender together with proof of your hardship and any other documents or information the lender requests. You must provide the lender as much detail as possible about your situation. If you have lost your job or had a significant or unexpected life change you should include this information in your hardship letter. It’s an excellent idea to describe how the change will help, such as the ability to continue to make payments or making payments on time. Your lender might also need financial documentation such as documents from your monthly bills , statement from your bank or statements. Verify that you have received your hardship application. Once you turn all the required documents in, the waiting game to hear from the lender begins. In the meantime make sure you pay as much as you can as repossession can continue to occur in the meantime you’re waiting for an answer on loan modification. Keep the people who are helping with the modification on the ball, letting them know that you’re still trying to make payments even in the midst of financial difficulties. What are the signs that you should alter your car loan Consider modifying your vehicle loan in the event that your financial situation has abruptly changed because of the loss of your job, a temporary layoff or furlough or medical emergency, or any other event that is out of your control. It might also be a prudent option if you’ve recently had a decrease in your earnings. It is also possible to look into the possibility of a loan modification in the event that your car is worth far less than the debt you have. That means that you’re . selling it to purchase an easier to afford vehicle could prove to be rather challenging and can cost you a lot. Auto loan modification is different from. refinancing It’s easy for people to make a mistake when comparing auto loan modifications with refinancing, however both aren’t identical. Both could lead to a lower payment. However, unlike the auto loan modification, refinancing your loan is the process of swapping the current loan for a brand new one with different conditions. You’ll probably need excellent or outstanding credit to be eligible, and you’ll have to complete the same application process similar to the one you went through when you took out your current loan. Most lenders also insist that the mileage of your vehicle doesn’t exceed 100,000 miles. You likely won’t be able to qualify if your vehicle is more then 10 years old. If an application to get a new loan is approved then the lender will pay off your old loan and you’ll begin payment with your new lender. However, with a loan change, you’ll have to work with your current lender throughout the entire process. The bottom line: It could be stressful when you cannot make the monthly payment on your car 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 loan modification. Ask about reduced monthly payments or a lower interest rate, or the option of a different due date if that will allow you to pay on time. If a modification isn’t an option, there are other programs that can help you find relief until you get your finances back in order. Find out more
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Allison Martin’s work began over 10 years ago when she was an online content strategist and she’s since been published in several leading financial outlets which include 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 passionate about helping readers feel confident to manage their finances with precise, well-researched and well-researched facts that break down otherwise complex subjects into bite-sized pieces.
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