Car loan modification: What it is and how it works Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive financial calculators and tools that provide objective and original content. This allows users to conduct research and compare information at no cost to help you make financial decisions with confidence. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies that pay us. This compensation could affect how and when products are featured on this website, for example, for example, the order in which they appear in the listing categories and other categories, unless prohibited by law for our mortgage or home equity products, as well as other products that lend money to homeowners. However, this compensation will not influence the information we publish, or the reviews that you see on this site. We do not include the entire universe of businesses or financial deals that might be open to you. KDP/Getty Images
4 min read Published on October 27, 2022.
Written by Allison Martin Allison Martin Written by Allison Martin's work began over 10 years prior to that as a digital content strategist. She's been published in numerous prestigious financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to manage their finances by providing detailed, well-studied information that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate promise
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We are compensated in exchange for the placement of sponsored products and, services, or through you clicking specific links on our site. So, this compensation can influence the manner, place and when products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other elements, like our own website rules and whether the product is available within your area or at your self-selected credit score range may also influence the manner in which products appear on this website. Although we try to offer a wide range offers, Bankrate does not include details about each credit or financial products or services. Are you struggling financially and are unable to pay your car payments? If your lender allows modifications to car loans or loans, you might be able to receive much-needed relief. Loan modification involves adjusting your monthly payment amount, due date or sometimes your interest rate. If you're behind with your payments, these options can aid in avoiding damaging your credit score or the possibility of having your vehicle 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 your , defer your payments for a short period or alter your due date so that it is more in line with your financial plan. You can also get an , which extends the amount that you loan out in order to reduce the monthly payment. However, extending the time for repayment will mean that your lender is able to take more money payments from you, which means you'll have to pay higher interest overall, unless you get back on track and . Loan modification is not readily available to all borrowers, however. While lenders generally aren't fond of repossessing vehicles of people who've fallen behind on their loans and you'll need to convince them. Part of that is convincing the lender that you will not be able to pay the amount you owe until they consent to modifying the terms of your loan. This could involve the submission of financial documents to show that you're experiencing difficulties. How do you get a car loan modified You'll need to reach out to the lender who created your loan directly to discuss the situation and determine eligibility for a loan modification. Be mindful that lenders will generally review your past payment history prior to making a decision. It's worthwhile to reference that you've been a good customer and managed your loan responsibly. If you've had problems with payments before and have a history of late payments, it may be a little more difficult to convince the lender to change the terms of your loan. Whatever the case follow these steps to start the process. Make contact with your lender immediately. Notify your lender that your auto loan payments are no longer feasible and you could be in debt quickly. Explain your circumstances and why you are struggling to make payments. The representative can offer temporary options for relief however, you should ask for someone who can assist with a long-term solution. It's best to explain that you want to keep your car however you need assistance to achieve this objective. Be specific and use a friendly tone throughout the phone call. Put your request in writing If a loan modification is possible in most cases, you'll be required to put your request in writing. The request will be sent to the lender, along with proof of your hardship and any other documents or information the lender wants. Give the lender as much detail as feasible about your circumstances. If you have lost your job or had a significant or unexpected life change include that information in your hardship letters. It's also a good idea to describe how the change will benefit you, like allowing you to continue making payments or make payments in time. Your lender might also require documents related to finances, such as copies of your bills for the month and bank statements or pay receipts. Confirm that you have received your hardship application. Once you turn all the required documents into the lender, the process of waiting to hear from the lender starts. In the meantime take care to pay what you can, as repossessions can continue to occur while you are awaiting the outcome of a loan modification. Keep the team helping to modify your loan in the loop, explaining that you're trying to make payments even when you face financial hardship. How to know if you need to modify your car loan You should think about changing your car loan if your financial situation has abruptly changed due to an unexpected job loss, temporary furlough or layoff, medical emergency or another event that is out of your control. It could also be a wise financial move if you have recently experienced reduced wages. You may also want to consider the possibility of a loan modification if your vehicle is worth less than the debt you have. That means that you're . selling it to purchase an affordable car could be a challenge and could end up costing you a significant amount. Auto loan modification and. refinancing It's easy to make a mistake when comparing the auto loan modifications with refinancing, however the two aren't quite identical. Both could lead to an easier 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. You'll probably need excellent or outstanding credit to be eligible for the loan, and you'll need to go through the same application process as you did when you took out your current loan. The majority of lenders will also require will require that your car does not exceed 100,000 miles. You likely won't be able to qualify when your vehicle is older that 10 years older. If you apply for the loan is accepted then the lender will pay off your previous loan and you'll be able to resume your payments to the current lender. But with a car loan modifications, it's your responsibility to have to work with your current lender during the process. The bottom line It can be stressful when you cannot make the monthly payment on your car and aren't in a position to refinance, but you don't have the option of going without a vehicle. Consider reaching out to your lender to request a car loan modification. Ask about reduced monthly payments and a reduced cost of interest, and even an alternative due date to assist you in making payments punctually. If modification is not an alternative, you may want to consider other programs that will assist you until you can get your finances back in order. Learn more
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Allison Martin's work began more than 10 years ago as a digital content strategist, and she's since been featured in several leading financial 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 editing and writing for Bankrate from late 2021. They are dedicated to helping their readers to take control of their finances with concise, well-researched, and clear facts that break down otherwise complex topics into manageable bites.
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