Are you having financial difficulties and having trouble paying for your car? If your lender offers auto loan modifications, you could get some much-needed relief in one of a few forms. Plus, you could possibly avoid damaging your credit score or repossessing your car.
What is a car loan modification
As the name suggests, an auto loan modification involves changing the terms of your loan. The lender may agree to reduce your interest rate, postpone your payments in the short term or change the due date of your payments to better respect your budget. You can also get an extended loan term, which extends your loan balance to lower your payments. But extending the term also means the lender has more time to collect from you, so you’ll pay more interest unless you get back on track and repay the loan sooner.
Loan modification however is not easily accessible to all borrowers. Although lenders generally don’t like repossessing vehicles from borrowers who have defaulted on their loans, you will need to make your case. Part of this is convincing the lender that you won’t be able to pay back what you owe unless they agree to modify your loan.
How to get a modified car loan
You will need to contact your lender directly to discuss your situation and determine your eligibility for a loan modification. Remember that your lender will usually review your payment history before making a decision. It’s worth mentioning that you were a good customer and handled your loan responsibly.
Follow these steps to get your car loan modified by your current lender:
- Immediately call your lender: Let your lender know that you may fall behind on your payments because they are no longer affordable. The representative may share temporary options for relief, but ask to speak with someone who can further assist you in finding a long-term solution.
- Make your request in writing: If loan modification is available, you will usually need to put your request in writing. You will submit the application to the lender, along with proof of your hardship and any other information or documentation requested by the lender.
- Confirm receipt of your hardship request: Once you have submitted all the documents, it is time to wait for a response from the lender. In the meantime, try to pay what you can and keep the team helping with the edit in the loop.
How to know if you need to change your car loan
Consider modifying your car loan if your financial situation has suddenly changed due to job loss, temporary layoff or vacation, medical emergency or other circumstance beyond your control. control. It could also be a smart financial decision if you recently took a pay cut.
You can also consider a loan modification if your car is worth much less than you owe. It means you are upside down on loan. Selling it to get a more affordable vehicle would prove rather difficult and could cost you a fortune.
Auto loan modification vs refinancing
It’s easy to confuse auto loan modifications with refinancing, but the two are not quite the same. Both can possibly get you a lower payout. But unlike auto loan modification, refinancing your loan involves swapping your current loan for a new one with different terms.
You’ll likely need good or excellent credit to qualify, and you’ll need to go through the same application process as when you took out your current loan. Most lenders also require your car’s mileage to be no more than 100,000 miles, and you likely won’t qualify if your vehicle is more than 10 years old.
When your new loan application is approved, the lender will pay off your old loan and you will resume payments with the new lender. But with an auto loan modification, you’ll work with your current lender throughout the process.
The bottom line
It can be stressful if you can’t afford to pay for your car and you’re not in a good position to refinance, but you don’t quite have the ability to live without a car. Consider contacting your lender to request an auto loan modification. If that’s not an option, there may be other programs to help you find relief until you get your finances back on track.