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 offering you interactive financial calculators and tools that provide objective and original content. We also allow users to conduct research and compare information 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 site are from companies who pay us. This compensation may impact how and when products are listed on the site, such as for instance, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. Our mortgage, home equity and other home lending products. This compensation, however, does not influence the content we publish or the reviews that you read on this site. We do not contain the vast array of companies or financial deals that might be open to you. KDP/Getty Images
4 min read Published 27 October 2022
Written by Allison Martin Written by Allison Martin's work started over 10 years ago as a digital media strategist. She's been featured in a variety of top financial publications, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Editor: Rhys Subitch Editor: 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 with concise, well-researched and precise information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee
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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 impact how, where and in what order products are displayed within the listing categories, unless the law prohibits it for our mortgage or home equity products, as well as other home lending products. Other factors, such as our own website rules and whether the product is available in your area or at your own personal credit score may also influence how and where products appear on this site. We strive to offer an array of offers, Bankrate does not include information about every financial or credit product or service. Are you facing financial difficulties and struggling to afford your car payments? If your lender allows modifications to car loans and you are eligible, you could be able to obtain much-needed relief. Loan modification involves adjusting the amount of your monthly payments, due date or sometimes the interest rate. If you're in debt with your payments, these options can assist you in avoiding ruining your credit score or getting your car taken away. What exactly is a loan modification means? as the name suggests it is a loan modification involves altering the terms of your loan. The lender may agree to lower your monthly payments, postpone payments for a short period or change your payment due date so that it is better for your budget. You can also get an , which spreads the balance that you loan out, allowing you to reduce your monthly payments. However, extending the time for repayment is also a sign that the lender is able to take more money from you, so you'll pay more in interest until you are back on track and . The option of loan modification isn't available to all borrowers, however. Although lenders are generally not fond of repossessing the vehicles of people who've fallen behind on their loans, you'll have to convince them. The first step is convincing your lender that you won't be able to pay what you owe , unless they agree to modify your loan. This could involve the submission of financial documents to show that you're facing hardship. How do you get a car loan changed You'll have to contact the lender who originated the loan in person to talk about your circumstances and determine your eligibility for an loan modification. Be mindful that lenders will generally review your past payment history prior to deciding. It's worthwhile to reference your past performance as a good customer and have managed your loan in a responsible manner. If you've had problems with payments in the past, it could be a bit more challenging in convincing the lender to alter your loan. In any case you must follow these steps to start the process. Make contact with your lender right away Notify your lender that your auto loan payments aren't affordable anymore and you could be in debt soon. Explain your circumstances and why you're struggling to make payments. The representative can offer some temporary solutions, however, you should ask for someone who can help with a long-term solution. It's best to mention that you'd like to keep your car but need help accomplishing this target. Be specific and use a friendly tone when you conversation. Put your request in writing If loan modification is offered and you'll usually be asked to make your requests in writing. The request will be sent to the lender along with evidence of your hardship and any other documents or information the lender requests. Give the lender as much detail as possible about your situation. If you lost your job or had a major or unexpected change in your life, share that details in your hardship letter. It is also a good idea to explain how the modification will help, such as the ability to continue to make payments or making payments on time. Your lender might also require documents related to finances, such as copies of your monthly bills and statement from your bank or statements. Verify the receipt of your hardship request When you've turned all the required documents into the lender, the process of waiting to hear back from the lender starts. If you're not hearing back make sure you pay as much as you can as repossession can still take place as you wait for a decision on loan modification. Keep the team helping to modify your loan up-to-date, explaining that you're still trying to make your payments in the midst of financial difficulties. What are the signs that you need to modify your car loan You should think about changing your vehicle loan if your financial situation has abruptly changed due to an unexpected job loss, temporary layoff or furlough or medical emergency, or any other event that is out of your control. It could also be a prudent option if you've recently experienced reduced wages. You might also want to look into an loan modification in the event that your car is worth less than the debt you have. It means you're . selling it to purchase an affordable car could make it a lot more difficult and can cost you a lot. A car loan modification and. refinancing It's easy to confuse the auto loan modifications with refinancing, but they're not identical. Both may lead to a lower payment. But unlike the auto loan modification refinancing your loan will require you to swap the current loan for a new one with different terms. You'll probably need excellent or exceptional credit score to be eligible for the loan, and you'll need to go through the same application procedure as you did when you took out the current loan. The majority of lenders will also require will require that your vehicle doesn't exceed 100,000 miles. You are unlikely to be eligible when your vehicle is older that 10 years older. When you apply for the loan is approved then the lender will repay the old loan and you'll be able to resume your payments to the current lender. With a loan change, you'll work together with the current lender throughout the entire process. The bottom line is that it can be stressful when you cannot pay for your car and aren't in the best situation to refinance but don't quite have the option to go without a vehicle. Consider reaching out to your lender to request a car loan modification. Request a reduction in monthly payments, a decreased cost of interest, and the option of a different due date, if it will allow you to pay on time. If you are not able to modify your payment alternative, you may want to consider other programs to aid you in locating relief until you can get your finances back on track. Learn more
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Allison Martin's writing began more than 10 years ago when she was a digital content strategist, and she's since been featured in various top financial media, including 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 to control their finances by providing clear, well-researched facts that break down complex topics into manageable bites.
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