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 offering you interactive tools and financial calculators as well as publishing quality and impartial content. We also allow you to conduct your own research and compare data for free to help you make informed financial decisions. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are displayed on this website are provided by companies that compensate us. This compensation can affect the way and when products are listed on the site, such as, for example, the sequence in which they appear within the listing categories, except where prohibited by law for our mortgage, home equity and other products that lend money to homeowners. However, this compensation will affect the information we publish, or the reviews that you see on this site. We do not include the entire universe of businesses or financial offerings that could be accessible to you. KDP/Getty Images
4 min read. Published on October 27, 2022.
Written by Allison Martin Allison Martin Written by Allison Martin's career began more than 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. 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 readers gain confidence to take control of their finances by providing concise, well-researched and precise information that breaks down complicated subjects into digestible pieces. The Bankrate promises
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This compensation could affect the way, location and when products are displayed within the listing categories, with the exception of those the law prohibits it for our mortgage home equity, mortgage and other home loan products. Other factors, like our own proprietary website rules and whether the product is offered in your region or within your personal credit score may also influence how and where products appear on this site. Although we try to offer an array of offers, Bankrate does not include information about each credit or financial products or services. Are you facing financial difficulties and are unable to pay your car payment? If your lender provides modifications on car loans and you are eligible, you could be able to obtain much-needed relief. Modifying your loan means adjusting the amount of your monthly payments as well as the due date and sometimes the interest rate. If you're behind in your payments, these choices can help you avoid ruining your credit score or getting your car taken away. What is a car loan modification is As the name implies the term "car loan modification entails changing the terms of your loan. The lender might be willing to lower your monthly payments, postpone payments for a short period or alter your due date so it works more in line with your financial plan. It's also possible to get an , which spreads the remaining balance of your loan out to lower your monthly payments. However, extending the time for repayment will mean that your lender will have more time in collecting from you, which means you'll have to pay higher interest overall, unless you get back on track . Modification of loan terms isn't readily accessible to all borrowers though. Though lenders tend to be wary of repossessing their vehicles people who've fallen behind on their loans and you'll need to argue your case. One of the most important things to do is convince your lender that you will not be able to repay the amount you owe until they consent to modifying the terms of your loan. This could mean the submission of financial documents to show that you're experiencing hardship. How to get a car loan modified ? You'll need to contact the lender who originated this loan directly to discuss your circumstances and determine your possibility of a loan modification. Be aware that lenders typically review your payment history prior to making a decision. It's beneficial to show your past performance as a good customer and handled your loan responsibly. However, if you've been late on payments in the past and have a history of late payments, it may be a little more difficult to convince the lender to alter the terms of your loan. In any case, adhere to these guidelines to begin the process. Call your lender immediately. Inform your lender that your auto loan payments are no longer feasible and you could be in debt quickly. Be clear about the circumstances and the reasons you are struggling to make payments. The representative might offer the options that are temporary, but ask to speak with someone who can further 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 that target. Make it clear, and use a calm tone throughout the phone call. Make your request in writing If a loan modification is possible and you'll usually be asked to submit your request in writing. The request will be sent to the lender along with evidence of your hardship as well as any other information or documents that the lender wants. Give the lender the most detailed information possible regarding your circumstance. If you lost a job or experienced some other important or sudden life event include that information in your hardship letter. It's important to outline how the change can help, for instance the ability to continue to make payments or making payments on time. Your lender might also need financial documents, like the copies of your monthly bills and the bank statement or stubs. Verify receipt of your hardship request When you've turned all the documents into the lender, the process of waiting to hear back from the lender starts. While waiting make sure you pay as much as you can, as repossessions can occur while you are awaiting an answer on loan modification. Keep the team helping with your modification up-to-date, explaining that you're still trying to make your payments amid financial challenges. How to know if you need to modify your car loan Consider modifying your car loan in the event that your financial situation has suddenly changed because of a job loss, temporary layoff or furlough or medical emergency, or any other event that is out of your control. It may also be a prudent decision if you've recently experienced reduced wages. You may also want to explore the possibility of a loan modification if your car is worth far less than the amount you owe. This means you're . Selling it to get an affordable car could prove to be rather challenging and can cost you a lot. The auto loan modification vs. refinancing It's easy for people to make a mistake when comparing the auto loan modifications with refinancing, however they're not identical. Both can possibly get you an easier payment. But unlike auto loan modification refinancing your loan will require you to swap the current loan for a brand new one with different terms. It is likely that you will need good or excellent credit to qualify and complete the same application process as you did when you took out your current loan. Most lenders also will require that your vehicle doesn't exceed 100,000 miles, and you likely won't be able to qualify for a loan if your car is more then 10 years old. If your application for the new loan is approved, the lender will repay the old loan and you'll be able to resume your payments to the current lender. But with a car loan modification, you'll be working with your current lender throughout the entire process. The bottom line is that it can be stressful when you cannot afford your car payment and aren't in a good situation to refinance however, you don't have the option to go without a vehicle. You might want to contact your lender to request a car loan modification. Request a reduction in monthly payments or a lower interest rate, or the option of a different due date to allow you to pay on time. If a modification isn't an option, there are other programs to help you find relief until you can get your finances back in order. Learn more
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Allison Martin's work began over 10 years ago when she was a digital content strategist and since then she's been published in various top financial media 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 dedicated to helping their readers feel confident to control their finances with concise, well-researched, and clear details that cut complex topics into manageable bites.
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