Car Loan Modification: Is It Right for You?

Unfortunately many of us will come across financial hardships in life, and auto loan modification may sound like a good thing to do. Not everyone should attempt this, but here's what you need to know if you are considering it.

If you're upside on your car loan, meaning you owe more than it's worth and wouldn't be able to pay it off even if you sold it, then you may qualify to modify your loan. An auto loan modification is different than a refinance, but can have some of the same benefits. The bank you are dealing with on the current loan may modify the loan amount for you, bringing you out of what may seem like an impossible situation.

If you have been victim to the economic downturn and have subsequently lost your job, or there has been another change in your income, making your car payments may feel like a lost cause. If you had been making your payments until a recent event changed your ability to, then you may be able to apply for a loan modification.

If your car is not worth what you owe, either from financing issues or accidents that weren't your fault, then applying for a car loan modification could benefit you. You may or may not be approved based on these circumstances, but you can always talk to the bank about your options.

The first step to trying to get an auto loan modification is to get all of your financial paperwork together. Once you have your bank statements, pay stubs and other paperwork together you can call the bank. Keep in mind that the bank doesn't have to offer this service to you by law, but in most cases it will benefit them though to offer a modification. You can also go through an attorney to get a loan modification done, although this is not a popular option for most people.

As long as you don't have a lot of expendable income each month, you will stand a good chance. Most lenders won't consider it if you have more than $400 a month left after bills and expenses. If you are currently delinquent on your car note, then it's another good sign that you will be eligible for a loan modification. Usually a lender will allow you to start the process once you are 60 days past due. You should never purposely become delinquent though just to qualify.

You will also need to be able to show a true need for the modification. A lost job, hospitalization, etc are reasons for modification. Just taking on too much debt will not be something the lender is really going to look kindly on.

If you have suffered a financial set back, you are better off asking for a loan modification than just letting the loan default. The bank would much rather work with you to prevent more loss than to go through the expense of sending the repo man to your driveway.