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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 choices by providing you with interactive tools and financial calculators as well as publishing quality and impartial content. This allows you to conduct research and compare information for free – so that you can make informed financial decisions. Bankrate has partnerships 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 pay us. This compensation could affect how and where products appear on the site, such as such things as the order in which they may appear within the listing categories and other categories, unless prohibited by law. This applies to our mortgage, home equity and other products for home loans. However, this compensation will not influence the content we publish or the reviews that you read on this site. We do not cover the universe of companies or financial offerings that could be accessible to you. KDP/Getty Images

4 min read Published October 27, 2022

Written by Allison Martin Written by Allison Martin’s work began 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. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances through providing concise, well-researched and precise facts that break down complex topics into manageable bites. The Bankrate promise

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There are money-related questions. Bankrate can help. Our experts have been helping you manage your money for over four years. We strive to continuously provide our readers with the professional advice and tools needed to be successful throughout their financial journey. Bankrate adheres to a strict code of conduct , so you can trust that our content is honest and precise. Our award-winning editors, reporters and editors create honest and accurate information to assist you in making the best financial decisions. The content created by our editorial team is objective, factual and is not influenced by our advertisers. We’re honest about the ways we’re able to bring quality content, competitive rates, and useful tools to you , by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated for the promotion of sponsored goods or services, or through you clicking specific links on our site. This compensation could impact how, where and when the products are listed within categories, except where prohibited by law for our mortgage, home equity and other home loan products. Other factors, like our own proprietary website rules and whether or not a product is available within your region or within your own personal credit score could also affect the manner in which products appear 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 item or product. Are you struggling financially and are unable to pay your vehicle 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 your monthly installment amount and due date, or even the interest rate. If you’re behind in your payments, these choices could aid in avoiding the damage to your credit score and getting your car taken away. What car loan modification is As the name implies the term “car loan modification entails changing the terms of the loan. The lender might be willing to lower your monthly payments, postpone payments for a short period or alter your due date so it works better for your budget. You can also get an , which extends the amount that you loan out, allowing you to reduce your monthly payments. However, the extended repayment time also means you pay more interest to the lender is able to take more money money from you, so you’ll pay higher interest overall, unless you get back on track and . Modification of loan terms isn’t readily accessible to all loan borrowers, though. Though lenders tend to be wary of repossessing vehicles of borrowers who’ve defaulted on their loans, you’ll have to plead your case. One of the most important things to do is convince that lender that you will not be able to pay the amount you owe until they agree to modify the terms of your loan. This could mean giving financial evidence to prove you are experiencing hardship. How do you obtain a car loan modified ? You’ll need contact the lender who originated the loan direct to clarify the situation and determine possibility of a loan modification. Be mindful that lenders will generally review your past payment history 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. If you’ve had problems with payment in the past it might be a little more difficult to convince the lender to change the terms of your loan. Whatever the case follow these steps to start the process. Contact your lender immediately. Inform your lender that your auto loan payments are no longer affordable and you are at risk of falling behind quickly. Be clear about the circumstances and the reasons you’re having difficulty making payments. The representative might offer the options that are temporary, but you must ask to speak to someone who can assist with an option that is long-term. It’s a good idea to explain that you want to keep the vehicle but require assistance in achieving your objective. Be specific, and use a pleasant tone throughout the phone call. Make your request in writing If loan modification is available and you’ll usually be asked to submit your request in writing. The request should be submitted to the lender along with evidence of your hardship and any other information or documents that the lender requests. Give the lender the most detailed information possible about your situation. If you lost your job or had a major or unexpected change in your life you should include this information in your hardship letter. It’s important to explain how the modification will benefit you, like the ability to continue to make payment or to make payments in time. Your lender may also require financial documents, like copies of your bills for the month and bank statements or pay stubs. Verify 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 begins. While waiting make sure you pay as much as you can since repossession could continue to occur as you wait for a decision on loan modification. Keep the people who are helping to modify your loan on the ball, letting them know that you’re still trying to make your payments in the midst of financial difficulties. How do you know if you should modify your car loan Think about modifying your car loan in the event that your financial situation has abruptly changed due to the loss of your job, a temporary layoff or furlough, medical emergency or another situation that is beyond your control. It might also be a prudent financial move if you have recently experienced reduced wages. You might also want to consider an loan modification in the event that your car is worth less than the amount you owe. This means you’re . selling your car to buy a more affordable vehicle would prove to be rather challenging and could end up costing you a significant amount. The auto loan modification is different from. refinancing It’s easy to make a mistake when comparing the auto loan modifications with refinancing, however the two aren’t quite identical. Both may lead to a lower payment. But unlike the auto loan modification, refinancing your loan will require you to swap 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 took out the current loan. The majority of lenders will also require that the mileage on your vehicle is not more than 100,000 miles. You are unlikely to be eligible when your vehicle is older than 10 years old. When your application for the new loan is approved then the lender will pay off your old loan, and you’ll resume your payments to the current lender. However, with a loan modifications, it’s your responsibility to be working with your current lender during the process. The bottom line: It could be stressful when you cannot make the monthly payment on your car and aren’t in a position to refinance, but don’t quite have the option to go without a car. Think about contacting your lender to ask for a loan modification. Consider requesting a lower monthly payment and a reduced interest rate, or an alternate monthly due date, if it will help you make payments punctually. If you are not able to modify your payment option, there may be other programs that can aid you in locating relief until you get your finances back on track. Find out more


Allison Martin’s work began more than 10 years ago, as a digital content strategist and since then she’s been published in a variety of top financial publications, 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 committed to helping readers feel confident to take control of their finances by providing concise, well-researched, and clear information that breaks down otherwise complex topics into manageable bites.

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