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Car Loan Modification Guide

Remember that TV program in which people get their cars sneakily repossessed while they are busy taking care of other things-say, watching TV, sleeping or, simply, having quality time with their children? How ironic would that be if someone were watching a program about vehicle repossession, while his or her own car was discreetly being reclaimed by the repo man-or woman, for that matter?

To avoid things like repossession, a high annual percentage rate, and blemished credit, pay attention to your auto loan payments and modify the debt if you are in financial straits and can no longer afford the monthly payments.

Car Loan Modification Guide

Why Would I Need a Car Loan Modification?

Don't think a car loan modification automatically means a resignation to faith, a subtle belief that your lender would agree to review and modify your loan right away. You have to be prepared, understand why you might need a modification, and talk to people who are proficient in topics as diverse as refinancing and loan modification.

You would need your car loan modified if you face two primary scenarios, although the list of reasons why people modify loans in general-and car loans in particular-is not limited to these two. First, you lose your job or are bowing to economic tedium so much, you risk breaking your budget if you continue making your car loan payments. The bottom line is, life is difficult for you, and you need a financial reprieve.

The second reason is that your outstanding car loan exceeds the car's fair market value, so even if you sold the vehicle, you'd still be left holding the interest rate bag. Things that could reduce your car's worth range from outright obsolescence to multiple accidents, mechanical breaks, or bad publicity resulting from manufacturer recalls or other adverse communication around the vehicle itself.

Would Lenders Allow Me to Modify My Auto Loan?

Don't worry about your lender denying your car loan modification request. Trust me, your creditor is not here to allocate blame or ask you convoluted questions about why you can no longer make payments or how you got yourself into the financial mess in the first place. Instead of engaging in a blame game, the creditor would rather work with you to prevent further financial losses, resetting your interest rate and setting payment amounts that you can afford each month. For the creditor, it is all about arithmetic. The company is better off losing a few dollars by modifying your loan than forking over much more cash to handle everything from car repossession to auction sale-or fire sale, for that matter. Believe it or not, in this case, your lender definitely has your best interests at heart.

How Does the Car Loan Modification Process Actually Work?

Contact Your Lender

When faced with financial turmoil, you first should stop worrying about the next payment. Switch gears and take matters into your own hands-literally. Call your lender and explain your situation, what caused the economic trouble, how you intend to get out of it, and how long you would need to fix the situation.

Pay no mind to the customer service rep who tells you about the potential dangers of not making your payments on time, of missing your next payment, of damaging your credit score, and blah blah blah. That script is something every rep is trained to read; think about it, wouldn't it be too easy if borrowers knew they could just call and say they can no longer make payments and instead would want reduced interest rates? The lender's goal is to discourage a generalized pattern on non- or delayed payments, but every banker knows that a certain percentage of debtors would default on their loans at any given time.

So, to recap: contact your lender, explain the situation, and say you would like to be considered for a loan modification.

Prepare Your Paperwork

Telling a customer service representative that you want a loan modification means you have to show some proof of financial tedium. This is where things like a hardship letter, unemployment payments, bank statements, and car appraisal reports come in. Your main aim is to show the lender clearly that the economics of your situation do not allow you to make payments on time-or make them at all.

Let me pause a bit to cover the hardship letter. This is your opportunity to "shine" or, rather, to show your lender that you need a financial reprieve. Talk specifically about why you need your auto loan to be modified and the interest rate to be revised downward. Mention the specific reason, be it death in the family, job loss, military duty, divorce, failed business, or meteorological misfortune as diverse as storm, hurricane, or tornado.

A few things to remember as you draft a hardship letter:

  • Favor clarity
  • Write straightforward prose
  • Stay away from murky reasons, motives that cannot be substantiated or sound unrealistic
  • Be honest

Wait for the Lender's Decision

After submitting your paperwork, including the hardship letter, all you have to do is wait. Just be patient and hope for a favorable outcome. Call the modification department every now and then to ask how things are going. Keep them in the loop, and whenever you call, write down the name of the representative you spoke to. Keep a good paper trail because (believe it or not) repossessions can continue while your modification application is being reviewed. What is worse, the modification team often does not communicate with the repossession and collections department, especially if you are dealing with a major lender that has offices in far-flung locales or has personnel spread across the United States.

Think About Your Options

While you are awaiting the lender's decision, you should think about your options. Regardless of how you fall on the loan modification issue, you still must make a decision at the end of the day. Even if you expect a positive decision from the lender, you still should think about the off-chance that things may not go your way. So think about options like selling your car, letting it be repossessed, or refinancing it with another lender. Each option has its pros and cons and most likely would adversely affect your credit score-but, needless to say, when you are in financial straits, your main priority is not to salvage that magic number that defines how creditors view you, risk-wise.


A car loan modification request, if approved, gives you peace of mind, a chance to start anew, financially speaking. If you find yourself in economic trouble and can no longer afford your vehicle loan payments, consider modifying the loan. Kick off the process by contacting your lender and presenting your case, and hope for the best. If the modification plea is denied, consider selling the car, refinancing it, or letting it be repossessed.

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