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 choices by providing you with interactive tools and financial calculators, publishing original and objective content. This allows you to conduct your own research and compare information for free 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 products that appear on this website are provided by companies that compensate us. This compensation could affect how and when products are listed on the site, such as, for example, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage, home equity and other products for home loans. However, this compensation will affect the information we publish, or the reviews appear on this website. We do not cover the universe 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 Allison Martin Written by Allison Martin’s work started over 10 years ago as a digital content strategist, and she’s since been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited by Rhys Subitch The editor is Auto loans Editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances with detailed, well-studied facts that break down complicated subjects into digestible pieces. The Bankrate guarantee
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This compensation could impact how, where and in what order products appear within listing categories, with the exception of those prohibited by law for our mortgage home equity, mortgage and other products for home loans. Other factors, such as our own website rules and whether or not a product is available in your area or at your self-selected credit score range could also affect the manner in which products appear on this site. Although we try to offer an array of offers, Bankrate does not include details about every financial or credit product or service. Are you struggling financially and are struggling to make vehicle payments? If your lender offers modifications on car loans or loans, you might be able to get some much-needed relief. Modifying your loan means adjusting your monthly installment amount, due date or sometimes your interest rate. If you’re in debt in your payments, these choices will assist you in avoiding the damage to your credit score and having your car repossessed. What is a car loan modification is As the name implies, a car loan modification is the process of changing the terms of the loan. The lender might be willing to lower your monthly payments, postpone payments in the short term or alter your due date to work better for your budget. It’s also possible to get an , which spreads the balance that you loan out, allowing you to reduce the monthly payment. However, the extended repayment time is also a sign that the lender is able to take more money money from you, so you’ll pay more in interest until you are back on track and . Loan modification is not readily available to all borrowers, however. While lenders generally aren’t fond of repossessing their vehicles people who’ve fallen behind on their loans and you’ll need to convince them. One of the most important things to do is convince your lender that you will not be able to pay what you owe , unless they consent to modifying your loan. This may require 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 originated the loan direct to clarify your situation and determine your possibility of the loan modification. Be aware that lenders generally review your past payment history prior to making a decision. It’s worthwhile to reference your past performance as a good customer and have managed your loan prudently. If you’ve had problems with payments in the past and have a history of late payments, it may be a bit more challenging in convincing the lender to change the terms of your loan. Whatever the case take these actions to begin the process. Contact your lender immediately. Inform your lender that the auto loan payments are no longer affordable and you risk falling behind soon. Be clear about the circumstances and the reasons you are struggling to make payments. The representative might offer the options that are temporary, but you must ask to speak to someone who can assist you as you’re seeking an option that is long-term. It’s best to state that you would like to keep the vehicle however you need assistance to achieve your target. Make it clear, and use a pleasant tone during the conversation. Write your request down If a loan modification is possible, you’ll typically be required to make your requests in writing. You’ll submit the request to the lender together with proof of your hardship as well as any other documents or information the lender wants. You must provide the lender as much detail as possible regarding your circumstance. If you lost your job or experienced some other major or unexpected change in your life you should include this information in your hardship letter. It is also a good idea to outline how the change can help, for instance allowing you to continue making payment or to make payments on time. Your lender may also require financial documents, like the copies of your monthly bills and the bank statement or statements. Verify receipt of your hardship request Once you turn all the required documents into the lender, the process of waiting to hear from the lender begins. In the meantime take care to pay what you can as repossession can continue to occur while you are awaiting the outcome of a loan modification. Keep the person who is helping you with your modification on the ball, letting them know that you are still trying to pay your bills in the midst of financial difficulties. How do you know if you need to modify your car loan Think about modifying your car loan in the event that your financial situation has suddenly changed as a result of a job loss, temporary furlough or layoff, medical emergency or another circumstance out of your control. It may also be a smart financial move if you have recently experienced reduced wages. You may also want to look into the possibility of a loan modification in the event that your car is worth far less than the debt you have. 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. A car loan modification is different from. refinancing It’s easy to make a mistake when comparing with auto loan modifications with , but they’re not identical. Both can possibly get you a lower payment. However, unlike auto loan modification, refinancing your loan involves swapping the current loan to a new loan with different terms. You’ll likely need good or excellent credit to qualify for the loan, and you’ll need to go through the same application procedure like you did when you got the current loan. Most lenders also that the mileage on your vehicle doesn’t exceed 100,000 miles. You likely won’t be able to qualify if your vehicle is more that 10 years older. When an application to get a new loan is accepted and the lender will pay off the old loan and you’ll begin your payments to the current lender. However, with a loan change, you’ll be working with your current lender throughout the entire process. The bottom line is that it can be stressful if you can’t pay for your car and aren’t in the best situation to refinance, but don’t quite have the option of going without a vehicle. You might want to contact your lender to request a loan modification. Request a reduction in monthly payments and a reduced amount of interest or even an alternate monthly due date to allow you to pay on time. If modification is not an option, there may be other programs that will aid you in locating relief until you can get your finances back in order. Find out more
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Written by Allison Martin’s work started 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 writing and editing for Bankrate from late 2021. They are dedicated to helping their readers gain the confidence to manage their finances through providing clear, well-researched details that cut complex subjects into bite-sized pieces.
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