If you're currently experiencing financial hardship or have trouble making your car payments, your lender may allow you to modify your car loan. Many banks have programs in place to help distressed borrowers, although the bank may decline to work with you. If so, you may have other options.
Modification Purpose
Before calling your lender to discuss your options, determine how a loan modification can help you. You may want to discuss deferring payments or extending your loan term to lower your monthly payment amount. If you can't afford your current car payment, figure out how much you can afford so that you can state your intent to your lender. If you are behind on monthly payments, determine when you can catch up and how many partial payments you can make to do so. Have a clear goal in mind before contacting your bank.
Dealing With Your Lender
Once you have your budget in order and a goal in mind, call your lender. Tell a customer service representative what you hope to accomplish and how much you can pay. Your lender may be able to bring your loan up to date by deferring your monthly payments. If your lender agrees to extend your term, it may require a higher interest rate. Discuss any contract changes, such as term and new payment amount, to determine if the loan modification is affordable even with modification.
Paperwork and Contracts
You may have to provide proof of financial hardship to obtain loan modification. For example, if you are unemployed, receive help from your state's social services department or are pregnant and unable to work, expect to provide proof. Once the bank approves your modification, you'll have to resign your contract or an agreement to reflect loan changes. Make sure all agreements are in writing; otherwise, a verbal agreement is not likely to prevent your vehicle from being repossessed or bring your loan out of default.
Other Options
If your bank will not work with you to modify the car loan, you have other options. If your credit has suffered as a result of financial hardship, you can apply for a refinance with a co-signer, who can secure your loan at a lower rate or a longer term. You can also sell your vehicle if its value is in line with your loan payoff amount; you must satisfy your loan to transfer vehicle ownership. Trading your vehicle to a dealership for a cheaper car is also an option, even with slight credit issues.
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