How to Properly Achieve a Loan Modification

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, - May 26, 2016

Performing a loan modification, which permanently changes some aspect of your original loan, may help you to secure better rates or benefits. There are a few different ways to modify your loan, and a few different companies that can perform the changes as desired.

To be eligible for an auto loan modification, you have to demonstrate a financial need by providing proof of your financial hardship (usually in the form of bank statements and pay stubs). Most lenders won't even help with your car loan terms until you are more than 90 days late with payment however. Here, you'll want to prove to the lender that you can make the payments but you just need a little help to do it. It's important to know exactly what you're doing and where to go if you plan on performing a modification, so read on to learn more.

Decide What Needs to Be Changed; Tell Them Why You Need Help

Tell the lender the circumstances regarding your need for help with your car loan payments. If necessary, give them a hardship letter listing the reasons why you fell behind. Include as much detail as possible—did your auto loan interest suddenly rise, resulting in a payment you can't afford? Did you lose your job or did your hours get cut back? Is it a divorce that’s causing your money problems? The lender will be much more likely to help you if they know the reasons behind your request.

Additionally, deciding exactly which terms are going to be changed and how is equally important. You can hire someone to seek out better terms on your behalf, or do the research and negotiate the new terms on your own. If you decide to do the latter, be aware that a lot of special financing offers are only available to people who are in the super preferred credit tier with their bank. Carefully research all of the options available to you, taking into account your credit score, before planning on a loan modification.

Make It Known that You Want to Pay the Loan

Express your desire to keep the vehicle and tell the lender that you can make the payments; you just need a little nudge in the right direction. Persuade the lender that you'll remain current with your payments. If you can, tell them about any recent events that will help you make your payment, such as a new job or increase in pay.

Tell the Lender How a Modification Will Help

Provide a statement detailing how a modification in your car loan terms will be of mutual benefit. For example, with a modification, you'll be able to make your payment on time each month, avoiding repossession and the damaged credit that comes with it.

Be Honest About Your Financial Situation

Give a detailed list of your expenses. Although we've put this at step number four, it's perhaps the most important part of the loan modification process. The other steps are meant to persuade the lender to work with you. Now it's time to talk numbers—you have to document all your expenses, such as credit card payments, mortgage and other costs of living, right down to how much you spend on groceries. If the lender has a complete picture of your financial situation, they're more likely to sympathize with you.

Talk to the Lender

Have a sit-down with them and find out what you have to do to get approved. Most lenders would rather accept a lower payment than get nothing at all from you and it's worth your while to see if they'd be willing to modify your car loan terms. Do whatever it takes and see if you can get a deal. Keep in mind, though, that there are fees associated with a loan modification, so be prepared to pay. Caveat: as loan modifications are a form of debt settlement, some lenders may report them as such on your credit report, making it more difficult to secure a future auto loan.

Be sure to contact your lender regarding loan modification options. Some lenders, such as Capital One, have very strict requirements and rarely allow loan modifications. Smaller regional banks and credit unions are more lenient; they may have more flexible modification options. In any case, contact your lender and see what options they can offer you.

Being short on cash is no fun, and neither is being stuck with a car loan you can't afford to pay. Car loan modification is a way to keep your car while safeguarding your credit rating. If you follow the steps above, you're more likely to get your modification approved.


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