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, publishing original and objective content, by enabling you to conduct research and compare information for free and help you make sound financial decisions. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies that compensate us. This compensation can affect the way and when products are listed on this site, including for instance, the order in which they may appear in the listing categories, except where prohibited by law. Our mortgage, home equity and other products for home loans. However, this compensation will not influence the information we publish, or the reviews appear on this website. We do not contain the vast array of companies or financial offerings that could be available to you. KDP/Getty Images
4 min read. Published October 27, 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 media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch Editor: Auto loans Editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances with detailed, well-studied facts that break down complicated subjects into digestible pieces. The Bankrate guarantee
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So, this compensation can impact how, where and in what order the products are listed within categories, except where prohibited by law for our mortgage, home equity and other home loan products. Other elements, like our own website rules and whether or not a product is available in your region or within your self-selected credit score range could also affect the manner in which products appear on this site. Although we try to offer the most diverse selection of products, Bankrate does not include specific information on each credit or financial item or product. Are you struggling financially 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 needed relief. Modifying your loan means adjusting the amount of your monthly payments and due date, or even the interest rate. If you’re in debt on payments, these options could aid in avoiding the damage to your credit score and the possibility of having your vehicle repossessed. What is a car loan modification is like the name suggests, a car loan modification involves altering the terms of your loan. The lender might agree to reduce your , defer your payments for a short period or change your payment due date to work better for your budget. It’s also possible to get an , which stretches the balance on your loan out to lower the monthly payment. However, the extended repayment time will mean that your lender will have more time in collecting payments from you, which means you’ll have to pay more in interest unless you’re back on track . The option of loan modification isn’t accessible to all borrowers though. Although lenders are generally not fond of repossessing vehicles of borrowers who’ve defaulted on their loans, you’ll have to argue your case. The first step is convincing that lender that you won’t be able pay back the amount you owe until they agree to modify your loan. This could involve the submission of financial documents to show that you’re facing difficulties. How do you obtain a car loan modified You’ll need to reach out to the lender who created the loan direct to clarify your circumstances and determine your eligibility for a loan modification. Be aware that lenders generally review your past payment record prior to making a decision. It’s important to prove your past performance as a good customer and managed your loan responsibly. But if you’ve missed payments before it might be more difficult for you to persuade the lender to modify your loan. Either way, take these actions to begin the process. Call your lender right away Notify your lender that your auto loan payments aren’t affordable anymore and you are at risk of falling behind quickly. Be clear about the circumstances and the reasons you’re struggling to make payments. The representative can offer the options that are temporary, 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 the vehicle however you need assistance to achieve this target. Be specific and use a pleasant tone throughout the phone conversation. Write your request down If loan modification is offered in most cases, you’ll be required to submit your request in writing. The request should be submitted to the lender along with evidence of your hardship, as well as any other documents or information that the lender requests. You must provide the lender the most detailed information possible regarding your circumstance. If you have lost your job or suffered a important or sudden life event include that information in your hardship letter. It’s important to outline how the change will benefit you, like permitting you to continue making payment or to make payments on time. Your lender might also need documents related to finances, such as copies of your monthly bills , the bank statement or statements. Confirm that you have received your hardship application. After you have turned all of the documents into the lender, the process of waiting to hear back from your lender commences. If you’re not hearing back, try to pay what you can, as repossessions can continue to occur in the meantime you’re waiting for a decision on loan modification. Keep the people who are helping with your modification in the loop, explaining that you are still trying to make payments even amid financial challenges. How do you know if you need to modify your car loan Consider modifying your vehicle loan in the event that your financial situation has abruptly changed as a result of a job loss, temporary furlough or layoff or medical emergency, or some other situation that is beyond your control. It may also be a prudent financial move if you have recently had a decrease in your earnings. It is also possible to explore a loan modification in the event that your car is worth far less than what you owe. It means you’re . Selling it to get an easier to afford vehicle could prove to be rather challenging and could cost you a fortune. The auto loan modification is different from. refinancing It’s easy to make a mistake when comparing with auto loan modifications with refinancing, however both aren’t the same. Both may lead to lower payments. However, unlike the auto loan modification, refinancing your loan is the process of swapping the current loan for a new one with different conditions. You’ll probably need excellent or exceptional credit score to be eligible, and you’ll have to go through the same application process as you did when you got your current loan. The majority of lenders will also require insist that the mileage of your car does not exceed 100,000 miles. You likely won’t be able to qualify if your vehicle is more that 10 years older. If you apply for the loan is approved and the lender will pay off the old loan and you’ll be able to resume payments with the new lender. However, with a loan change, you’ll have to work 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 a situation to refinance but don’t quite have the option to go without a vehicle. Think about contacting your lender to request a loan modification. Consider requesting a lower monthly payment or a lower amount of interest or an alternate monthly due date, if it will allow you to pay on time. If a modification isn’t an alternative, you may want to consider other programs that can aid you in locating relief until you get your finances back on track. Learn more
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Allison Martin’s writing started over 10 years ago, as a digital content strategist, and she’s since been featured in several leading financial outlets, 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 editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing precise, well-researched and well-researched details that cut otherwise complex subjects into bite-sized pieces.
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