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(image: https://farm66.static.flickr.com/65535/50932451642_b0ce303d5e.jpg)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 providing you with interactive financial calculators and tools that provide objective and original content. We also allow you to conduct research and compare information for free and 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 products that appear on this website are provided by companies who pay us. This compensation may impact how and when products are featured on this site, including such things as the order in which they may be listed within the categories of listing and other categories, unless prohibited by law for our mortgage home equity, mortgage and other home lending products. But this compensation does affect the information we publish, or the reviews you see on this site. We do not cover the vast array of companies or financial deals that might be open to you. KDP/Getty Images
4 min read Published 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. Editor: Rhys Subitch Edited by Auto loans Editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to take control of their finances through providing concise, well-researched and precise information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate guarantee
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This compensation could influence the manner, place and in what order the products are listed within categories, with the exception of those the law prohibits it for our mortgage home equity, mortgage and other home lending products. Other factors, like our own website rules and whether a product is available within your area or at your own personal credit score can also impact how and where products appear on this site. We strive to offer a wide range offers, Bankrate does not include specific information on each credit or financial product or service. Are you struggling financially and are struggling to make vehicle payments? If your lender provides modifications on car loans, you may be able to obtain needed relief. Loan modification involves adjusting your monthly installment amount, due date or sometimes the interest rate. When you are behind in your payments, these choices can aid in avoiding damaging your credit score or the possibility of having your vehicle repossessed. What is a car loan modification means? like the name suggests it is a loan modification is the process of changing the terms of your loan. The lender may agree to lower your , defer your payments for the short-term or change the due date so that it is better for your budget. There is also the option of getting an , which extends the amount on your loan out in order to reduce the monthly payment. However, extending the time for repayment also means your lender will have more time in collecting from you, so you'll pay higher interest overall, unless you get back on track . The option of loan modification isn't accessible to all loan borrowers, though. Though lenders tend to be wary of repossessing their vehicles people who've fallen behind on their loans however, you'll need to argue your case. One of the most important things to do is convince the lender that you will not be able to repay the amount you owe until they consent to modifying your loan. This could involve providing financial documentation to prove that you're facing hardship. How to get a car loan changed You'll have to reach out to the lender who created the loan direct to clarify the situation and determine ability to qualify for an loan modification. Be aware that lenders generally review your past payment history before making a decision. It's worthwhile to reference that you've been a good customer and have managed your loan responsibly. However, if you've been late on payment in the past and have a history of late payments, it may be a little more difficult to convince the lender to modify the terms of your loan. In any 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 are at risk of falling behind in the near future. Tell them about your situation and the reason you're struggling to make payments. The representative might offer temporary options for relief however, you should ask for someone who can help you as you're seeking an option that is long-term. It's helpful to mention that you'd like to keep the car, however you need assistance to achieve your target. Be specific, and use a calm tone throughout the phone conversation. Write your request down If loan modification is offered in most cases, you'll be required to make your requests in writing. You'll submit the request to the lender together with proof of your hardship and any other information or documents the lender requests. You must provide the lender as much detail as possible regarding your circumstance. If you have lost your job or experienced some other important or sudden life event, share that information in your hardship letter. It's also a good idea to outline how the change will help, such as permitting you to continue making payment or to make payments on time. Your lender may also require financial documentation such as the copies of your bills for the month and the bank statement or stubs. Verify the receipt of your hardship request After you have turned all of the documents in, the waiting game to hear from the lender starts. While waiting, try to pay what you can since repossession could still take place in the meantime you're waiting for an answer on 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 amid financial challenges. What are the signs that you should alter your car loan Think about modifying your vehicle loan in the event that your financial situation has abruptly changed because of a job loss, temporary furlough or layoff, medical emergency or another situation that is beyond your control. It might also be a smart financial move if you have recently had a decrease in your earnings. You might also want to look into an loan modification in the event that your car is worth less than what you owe. This means you're . selling your car to buy an easier to afford vehicle could prove to be rather challenging and can cost you a lot. A car loan modification vs. refinancing It's easy for people to mix auto loan modifications with refinancing, however they're not the same. Both could lead to an easier payment. But unlike auto loan modification refinancing your loan involves swapping your 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 complete the same application process similar to the one you went through when you applied for your current loan. Most lenders also that the mileage on your car does not exceed 100,000 miles. You likely won't be able to qualify for a loan if your car is more that 10 years older. If you apply for the loan is approved and the lender will pay off your previous loan, and you'll resume payments with the new lender. But with a car loan change, you'll have to work with your current lender through the whole process. The bottom line: It could be stressful if you are unable to afford your car payment and aren't in a good position to refinance, but you don't have the option to go without a car. Think about contacting your lender to request a car loan modification. Consider requesting a lower monthly payment or a lower cost of interest, and even an alternate monthly due date to allow you to pay on time. If modification is not an option, there are other programs that will aid you in locating relief until you get your finances back on track. Learn more
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Allison Martin's work started over 10 years ago, as a digital content strategist, and she's since been featured 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 editing and writing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to take control of their finances through providing clear, well-researched information that breaks down otherwise complex subjects into bite-sized pieces.
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