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 tools and financial calculators that provide objective and original content. This allows you to conduct research and compare information at no cost to help you make informed 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 Earn Money The deals that are displayed on this site come from companies who pay us. This compensation may impact how and when products are listed on the site, such as, for example, the order in which they be listed within the categories of listing, except where prohibited by law for our mortgage home equity, mortgage and other home lending products. However, this compensation will have no impact on the information we publish, or the reviews you see on this site. We do not include the universe of companies or financial offerings that could be open to you. KDP/Getty Images
4 min read Published on October 27, 2022.
Written by Allison Martin Written by Allison Martin's work started over 10 years ago as a digital media strategist, and she's since been published in numerous prestigious financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Written by Rhys Subitch The editor is Auto loans Editor Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping readers gain confidence to take control of their finances with detailed, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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We receive compensation for the promotion of sponsored goods andservices or by you clicking on specific links on our site. This compensation could affect the way, location and when the products are listed within categories, unless it is prohibited by law for our mortgage or home equity products, as well as other products for home loans. Other factors, such as our own website rules and whether a product is available within the area you reside in or is within your personal credit score could also affect the way and place products are listed on this site. While we strive to provide the most diverse selection of products, Bankrate does not include specific information on each credit or financial product or service. Are you struggling financially and struggling to afford your car payments? If your lender provides modifications on car loans and you are eligible, you could be able to get some much-needed relief. Modifying your loan involves changing your monthly installment amount and due date, or even your interest rate. If you're in debt with your payments, these options could aid in avoiding damaging your credit score or having your car repossessed. What exactly is a loan modification can you do? As the name implies it is a loan modification is the process of changing the terms of the loan. The lender may agree to lower the amount of your loan, delay your payments for the short-term or change your payment due date so it works best for you budget. You can also get an , which spreads the balance that you loan out to lower the monthly payment. However, the extended repayment time also means you pay more interest to the lender will have more time in collecting from you, which means you'll have to pay higher interest overall unless you're back on track . Modification of loan terms isn't readily 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 plead 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 the terms of your loan. This may require the submission of financial documents to show that you're experiencing difficulties. How do you obtain a car loan modified ? You'll need to reach out to the lender who initiated this loan directly to discuss the situation and determine eligibility for the loan modification. Be aware that lenders typically review your payment history before deciding. It's important to prove that you've been a good customer and managed your loan in a responsible manner. However, if you've been late on payments in the past and have a history of late payments, it may be a bit more challenging to convince the lender to alter your loan. In any case adhere to these guidelines to begin the process. Make contact with your lender immediately. Notify your lender that the auto loan payments aren't affordable anymore and you could be in debt quickly. Tell them about your situation and the reason you're struggling to make payments. The representative might offer temporary options for relief but you must ask to speak to someone who can assist with an option that is long-term. It's best to state that you would like to keep your car but need help accomplishing this target. Be specific, and use a pleasant tone during the call. Make your request in writing If a loan modification is available in most cases, you'll be required to make your requests in writing. The request will be sent to the lender together with proof of your hardship and any other documents or information that the lender requests. Give the lender the most detailed information feasible about your circumstances. If you lost a job or experienced some other major or unexpected change in your life, share that details in your hardship letter. It's important to outline how the change can help, for instance allowing you to continue making payments or making payments in time. Your lender might also need financial documents, like copies of your monthly bills and bank statements or pay statements. Verify that you have received your hardship application. Once you turn all documents in, the waiting game to hear back from the lender commences. 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 people who are helping with your modification in the loop, explaining that you're still trying to make your payments amid financial challenges. What are the signs that you should alter your car loan You should think about changing your vehicle loan in the event that your financial situation has suddenly changed because of the loss of your job, a temporary layoff or furlough, medical emergency or another event that is out of your control. It might also be a wise decision if you've recently had a decrease in your earnings. It is also possible to explore an loan modification in the event that your car is worth less than the amount you owe. It means you're . selling it to purchase a more affordable vehicle would make it a lot more difficult and can cost you a lot. Auto loan modification is different from. refinancing It's easy for people to make a mistake when comparing with auto loan modifications with , but the two aren't quite the same. Both can possibly get you lower payments. However, unlike the auto loan modification, refinancing your loan involves swapping the current loan to a new loan with different terms. You'll likely need good or exceptional credit score to be eligible and undergo the same application procedure like you did when you took out the current loan. The majority of lenders will also require insist that the mileage of your car does not exceed 100,000 miles, and you are unlikely to be eligible for a loan if your car is more then 10 years old. If your application for the new loan is accepted then the lender will repay your old loan and you'll begin your payments to the current lender. But with a car loan modification, you'll have to work alongside your existing lender throughout the entire process. The bottom line It can be stressful when you cannot pay for your car and aren't in a situation to refinance but you don't have the option of going without a car. Think about contacting your lender to request a loan modification. Ask about reduced monthly payments or a lower interest rate, or even an alternate monthly due date if that will help you make payments on time. If a modification isn't an 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 as a digital content strategist and she's since been published in various top financial media which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. Edited 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 manage their finances with concise, well-researched, and clear information that breaks down complicated topics into digestible pieces.
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