Are you having financial difficulties and can you not afford to pay for your car? If your lender offers you car loan modifications, you could get some much-needed relief in one of several ways. In addition, you could possibly avoid ruining your credit score or recovering your car.
What is a car loan modification?
As the name implies, a car loan modification implies a change in the terms of your loan. The lender may agree to reduce yours interest rate, defer your payments in the short term or change your payment end date to better suit your budget. You could also get an extended loan term, which extends your loan balance to reduce your payments. However, extending the term also means that the lender has more time to collect from you, so you will pay more interest unless you get back on track and repay the loan earlier.
However, loan modification is not immediately available to all borrowers. While lenders generally do not like to recover the vehicles of borrowers who have defaulted on their loans, you need to back up your case. Part of this is convincing the lender that you will not be able to repay what you owe unless he agrees to modify your loan.
How To Get A Car Loan Modified
You will need to contact your lender directly to discuss your situation and determine your suitability for loan modification. Keep in mind that your lender will usually look at your payment history before making a decision. It is worth mentioning that you were a good customer and you managed your loan responsibly.
Follow these steps to modify your car loan from your current lender:
- Call your lender immediately: Let your lender know that you risk falling behind in payments as they are no longer affordable. The representative can share temporary options for relief, but ask to speak to someone who can help you further as you look for a long-term solution.
- Submit your request in writing: If a loan modification is available, you will usually need to submit your application in writing. You will submit the request to the lender, along with proof of your difficulty and any other information or documents requested by the lender.
- Confirm receipt of your request for difficulties: Once you have submitted all the documents, it is time to wait for an answer from the lender. In the meantime, try to pay as much as you can and keep the team helping with the modification in the loop.
How to find out 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 dismissal or leave, medical need or other circumstance beyond your control. It could also be a smart financial move if you have recently experienced reduced wages.
You may also want to consider a loan modification if your car is worth much less than you owe. That means you are upside down on the loan. Selling it to get a more affordable vehicle would prove to be quite difficult and could cost you a fortune.
Modification of an auto loan versus refinancing
It’s easy to confuse car loan modifications with refinancing, but the two are not the same. Both can potentially bring you lower pay. But unlike auto loan modification, refinancing your loan involves replacing your current loan with a new one on different terms.
You will probably need good or excellent credit to qualify and you will have to go through the same application process as you did when you received your current loan. Most lenders also require that your car mileage not exceed 100,000 miles and you will probably not qualify if your vehicle is over 10 years old.
Once your new loan application is approved, the lender will repay your old loan and resume payments with the new lender. But with a car loan modification, you will be working with your current lender throughout the process.
The bottom line
It can be stressful if you can not afford to pay for your car and you are not in a good position to refinance, but you do not have the option to go without a car. Consider contacting your lender to request a car loan modification. If not an option, there may be other programs that will help you find relief until you get your finances back on track.