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 better financial choices by offering you interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct your own research and compare information for free and help you make financial decisions with confidence. Bankrate has partnerships with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The deals that are displayed on this site are from companies that compensate us. This compensation could affect how and where products appear on this site, including, for example, the sequence in which they appear in the listing categories, except where prohibited by law for our mortgage home equity, mortgage and other products for home loans. However, this compensation will affect the information we publish, or the reviews you read on this site. We do not include the entire universe of businesses 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 began over 10 years prior to that as a digital content strategist. She’s been published in numerous prestigious financial media outlets, such as The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Edited by Rhys Subitch Editor: Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to control their finances with detailed, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises

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This compensation could influence the manner, place and in what order products are displayed within the listing categories, with the exception of those the law prohibits it for our mortgage or home equity products, as well as other home loan products. Other factors, like our own proprietary website rules and whether or not a product is available in your area or at your personal credit score can also impact the manner in which products appear on this website. We strive to offer the most diverse selection of products, Bankrate does not include information about every financial or credit product or service. Are you facing financial difficulties and struggling to afford your vehicle payments? If your lender offers modifications on car loans or loans, you might be able to receive needed relief. Modifying your loan means adjusting the amount of your monthly payments and due date, or even the interest rate. If you’re behind on payments, these options will help you avoid ruining your credit score or getting your car taken away. What car loan modification means? As the name implies it is a loan modification involves changing the terms of the loan. The lender might be willing to lower your , defer your payments for the short-term or change the due date so it works best for you budget. There is also the option of getting an , which spreads the balance on your loan out, allowing you to reduce 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, so you’ll pay higher interest overall unless you’re back on track and . Loan modification is not readily accessible to all loan borrowers, however. Though lenders tend to be wary of repossessing vehicles of people who’ve fallen behind on their loans however, you’ll need to convince them. Part of that is convincing your lender that you will not be able to pay what you owe , unless they consent to modifying the terms of your loan. This could mean the submission of financial documents to show that you’re experiencing difficulties. How do you get a car loan modified You’ll need to reach out to the lender who initiated the loan directly to discuss the situation and determine possibility of an loan modification. Be mindful that lenders will generally review your past payment record prior to deciding. It’s worthwhile to reference your past performance as a good customer and managed your loan responsibly. But if you’ve missed payments in the past and have a history of late payments, it may be a bit more challenging for you to persuade the lender to alter the terms of your loan. In any case, follow these steps to start the process. Contact your lender immediately. Notify 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 struggling to make payments. The representative might offer temporary options for relief but you must ask to speak to someone who can help with a long-term solution. It’s a good idea to state that you would like to keep the car, but require assistance in achieving that objective. Be specific, and use a calm tone when you call. Make your request in writing If a loan modification is available, you’ll typically be required to submit your request in writing. You’ll submit the request to the lender along with evidence of your hardship, as well as any other information or documents the lender wants. You must provide the lender the most detailed information possible about your situation. If you lost a job or experienced some other important or sudden life event include that details in your hardship letter. It’s an excellent idea to describe how the change can help, for instance permitting you to continue making payment or to make payments in time. Your lender might also need financial documentation such as copies of your bills for the month and statement from your bank or statements. Verify that you have received your hardship application. When you’ve turned all the documents in, the wait to hear back from your lender starts. If you’re not hearing back make sure you pay as much as you can as repossession can occur in the meantime you’re waiting for the outcome of a loan modification. Keep the team helping with your modification in the loop, explaining that you are still trying to make your payments when you face financial hardship. How to know if you need to modify your car loan You should think about changing your vehicle loan in the event that your financial situation has suddenly changed because of an unexpected job loss, temporary furlough or layoff or medical emergency, or some other situation that is beyond your control. It could also be a prudent option if you’ve recently had a decrease in your earnings. It is also possible to look into the possibility of a loan modification if your vehicle is worth far less than the amount you owe. That means that you’re . Selling it to get a more affordable vehicle would be a challenge and could cost you a fortune. Auto loan modification vs. refinancing It’s easy for people to confuse with 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 involves swapping the current loan for a brand new one with different conditions. You’ll probably need excellent or exceptional credit score to be eligible for the loan, and you’ll need to undergo the same process of applying like you did when you took out the current loan. A majority of lenders require insist that the mileage of your car does not exceed 100,000 miles. You are unlikely to be eligible when your vehicle is older then 10 years old. When your application for the new loan is accepted, the lender will repay your previous loan and you’ll begin payment with your new lender. But with a car loan change, you’ll have to work together with the current lender throughout the entire process. The bottom line: It could be stressful if you are unable to afford your car payment and aren’t in the best situation to refinance, however, you don’t have the option of doing without a vehicle. Think about contacting your lender to ask for a loan modification. Ask about reduced monthly payments, a decreased interest rate, or even an alternative due date if that will help you make payments on time. If you are not able to modify your payment alternative, you may want to consider other programs that can assist you until you can get your finances back in order. Find out more


Allison Martin’s work began over 10 years ago when she was an online 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 Written 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 manage their finances by providing clear, well-researched information that breaks down complex subjects into bite-sized pieces.

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