How to Use Principal Reduction on Car Loan

If you're struggling to make your monthly car payments because of a recent financial hardship, and you're worried that you'll default on your auto loan, it's time to call your auto lender to ask for a reduction in your loan's principal. By reducing the amount you owe on your auto loan, your lender will also be lowering your monthly payment, saving you from defaulting.

Instructions

1

Gather the financial papers that you'll use to convince your auto lender that you have suffered a financial hardship that has made your car payments a burden. Copy the documents that prove your monthly debt obligations, such as your credit-card statements and statements from any other loans you may have, such as student or home loans. Also make copies of your two most recent paychecks and your most recent federal income tax return. You'll use these to prove your gross monthly income.

2

Call your auto lender at the number provided on your most recent loan statement. Explain that you've suffered a financial hardship--a job loss, lengthy sickness or drop in annual income--that is making it impossible for you to continue making your car payments. Ask your lender to reduce the principal you owe as a way to provide relief.

3

Send in the paperwork that you collected in Step 1. Your auto lender will review these documents to determine that you really have suffered a serious financial setback that has made it difficult to pay your car payments.

4

Agree to a principal reduction on your car loan if your lender approves your request. Your lender will then send you a new set of coupon books with the new amount of money you owe each month. Make sure, before agreeing, that you can afford this new amount each month.

5

In the majority of cases, a bank won't reduce the principal balance of your car loan amount, even if you can prove financial hardship. But even if your lender does not agree to reduce the principal of your car loan, you might still qualify for financial relief. Your auto lender might lengthen the term of your loan to lower your payments, or reduce your interest rate. Both might provide the financial relief you need and keep you out of worse situations, such as repossession.