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 as well as publishing quality and impartial content. This allows users to conduct research and compare information at no cost to help you make informed financial decisions. 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 website are provided by companies that compensate us. This compensation can affect the way and where products appear on this site, including, for example, the order in which they be listed within the categories of listing and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home lending products. However, this compensation will have no impact on the information we provide, or the reviews that appear on this website. We do not cover the entire universe of businesses or financial offerings that could be open to you. KDP/Getty Images
4 min read Published 27 October 2022
Written by Allison Martin Allison Martin Written by Allison Martin's work started over 10 years ago as a digital content strategist. She's been published in several leading 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 writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to take control of their finances through providing detailed, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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We are compensated in exchange for the promotion of sponsored goods and, services, or through you clicking certain links posted on our website. So, this compensation can impact how, where and when products appear within listing categories, unless it is prohibited by law for our mortgage or home equity products, as well as other home loan products. Other factors, such as our own rules for our website and whether the product is available within the area you reside in or is within your self-selected credit score range may also influence the manner in which products appear on this site. We strive to offer an array of offers, Bankrate does not include specific information on every credit or financial products or services. Are you struggling financially and are struggling to make car payments? If your lender provides modifications on car loans, you may be able to get some much-needed relief. Modifying your loan means adjusting your monthly installment amount and due date, or even your interest rate. When you are behind on payments, these options will help you avoid the damage to your credit score and getting your car taken away. What is a car loan modification can you do? like the name suggests the term "car loan modification involves changing the terms of your loan. The lender may agree to lower your , defer your payments for the short-term or alter your due date so it works better for your budget. You can also get an , which spreads the amount of your loan out, allowing you to reduce the monthly payment. However, extending the time for repayment will mean that your lender will have more time in collecting payments from you, so you'll pay more in interest, unless you get back on track and . Modification of loan terms isn't readily available to all borrowers, though. Although lenders are generally not fond of repossessing vehicles of people who've fallen behind on their loans, you'll have to plead your case. One of the most important things to do is convince the lender that you will not be able to pay what you owe unless they agree to modify your loan. This may require the submission of financial documents to show you are experiencing hardship. How do you get a car loan modified You'll need to contact the lender who initiated this loan direct to clarify your situation and determine your ability to qualify for the loan modification. Be mindful that lenders will usually review your credit record prior to deciding. It's beneficial to show the fact that you've been a responsible customer and managed your loan in a responsible manner. However, if you've been late on payments before, it could be more difficult to convince the lender to alter your loan. In any case take these actions to begin the process. Call your lender immediately. Notify your lender that your auto loan payments aren't affordable anymore and you risk falling behind soon. Tell them about your situation and the reason you're having difficulty making payments. The representative can offer some temporary solutions, but you must ask to speak to someone who can assist you as you're seeking a long-term solution. It's a good idea to mention that you'd like to keep the vehicle but need help accomplishing that objective. Be specific, and use a friendly tone when you call. Write your request down If loan modification is offered, you'll typically be required to submit your requests in writing. The request should be submitted to the lender together with proof of your hardship as well as any other documents or information that the lender requests. Give the lender as much detail as feasible about your circumstances. If you lost a job or suffered a significant or unexpected life change, share that information in your hardship letter. It's also a good 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 financial documentation such as documents from your monthly bills , bank statements or pay statements. Confirm that you have received your hardship application. After you have turned all of the required documents in, the wait to hear back from your lender commences. While waiting take care to pay what you can as repossession can occur while you are awaiting the outcome of a loan modification. Keep the people who are helping to modify your loan in the loop, explaining that you're still trying to make payments even in the midst of financial difficulties. How do you know if you should modify your car loan Think about modifying your car loan if your financial situation has suddenly changed due to an unexpected job loss, temporary furlough or layoff, medical emergency or another situation that is beyond your control. It might also be a wise financial move if you have recently had a decrease in your earnings. It is also possible to look into an loan modification in the event that your car is worth less than what you owe. That means that you're . selling your car to buy an easier to afford vehicle could be a challenge and could end up costing you a significant amount. A car loan modification is different from. refinancing It's easy for people to mix the auto loan modifications with refinancing, however they're not the same. Both can possibly get you an easier payment. However, unlike auto loan modification refinancing your loan is the process of swapping your current loan for a new one with different conditions. You'll likely need good or excellent credit to qualify for the loan, and you'll need to undergo the same process of applying as you did when you applied for the current loan. The majority of lenders will also require that the mileage on your vehicle is not more than 100,000 miles, and you are unlikely to be eligible if your vehicle is more then 10 years old. If your application for the new loan is accepted and the lender will pay off your previous loan and you'll be able to resume your payments to the current lender. With a loan modification, you'll have to work together with the current lender throughout the entire process. The bottom line: It could be stressful when you cannot afford your car payment and aren't in the best situation to refinance but you don't have the option of doing without a car. You might want to contact your lender to request a loan modification. Request a reduction in monthly payments or a lower amount of interest or even an alternative due date, if it will assist you in making payments punctually. If you are not able to modify your payment option, there are other programs that will help you find relief until you get your finances back on track. Find out more
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Allison Martin's writing began over 10 years ago as an online content strategist and since then she's 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 since late 2021. They are committed to helping readers gain the confidence to control their finances by providing concise, well-researched, and clear information that breaks down complex subjects into bite-sized pieces.
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