How to Reduce Car Payments Without Refinancing Your Car Loan

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It’s not unusual to encounter financial hardship and struggle with paying bills. If you find yourself in this position, you will most likely seek to reduce your monthly expenditures. One way to do this is to reduce your car payments without getting a refinancing loan. A common way to do this is through car loan modification, especially if your qualifying factors for credit are not at their best.

Understanding Car Loan Modification

Car loan modification may seem similar to refinancing a car, but they are not the same thing. When you are refinancing, you have to reapply for a new loan. You will have to qualify for credit, just as you did for the original loan. With car loan modification, you are asking your lender to modify and lower the payments on your existing loan.
You’re not applying for new credit. Instead, you are claiming you have financial hardship that is making it impossible to meet your financial commitments. A lender can lower car payments through modification by reducing the current interest rate or extending the loan term, so you can make more payments at a reduced monthly amount.

Deciding on Car Loan Modification

Before applying for car loan modification, you need to decide if it is the right option for you. Not everyone is eligible for modification. You must prove financial hardship. If you think you will miss enough payments that your lender will repossess your car, you should consider modification. If you are out of work due to a layoff or an illness, you should explore this option as well.
However, if your credit is in good condition and you think you can qualify for a car refinancing loan, that might the route you want to pursue.

Applying for Car Loan Modification

Part 1: Meet with your lender. Explain your situation and discuss your options.
Not all lenders offer loan modification and will only reduce car payments through a refinancing loan. Sometimes a lender will defer your payments if your financial hardship is only temporary. You will need to meet with your lender to discuss your options. Whatever you do, keep them in the loop.
If they know you truly want to pay off your loan and are not trying to get out of your commitment, they are more likely to help you find a solution that works for the both of you.
Part 2: Gather documentation. You will have to provide proof for modification.
Just like applying for a new loan or refinancing loan, you will have to provide documents supporting your claim. Documents you may be asked to submit include pay stubs, proof of employment, proof of injury, proof of unemployment, bank statements, a list of current bills, and other income sources.
Part 3: Prepare a hardship letter and submit your request. You will have to compose a statement explaining why you should receive loan modification.
The hardship letter is your formal request for car loan modification. Not all lenders, judges, and jurisdictions require it, but you never know, so always have one prepared. In your letter, you will need to explain why making your car payment is difficult, detail any special circumstances reducing your income level, and outline any situations that might be increasing your overall bills.
Job loss is an example of income reduction, while medical expenses due to an accident can be proof of an increase in bills. You will also need to provide an explanation of what you can afford, the new terms you are seeking, and anything else you think will be helpful to make your case.
You should add in your letter that it is your intention to pay the loan in full. Once you have everything put together, you will submit your request. Remember, you still need to make payments while you are waiting for a decision.
Part 4: Accept or decline the lender’s modification terms. Review all your options before making a final decision.
Keep in mind that you may have to make your request for a loan modification more than once before it is finally approved. This process can be very time consuming and will not happen overnight. You do not have to accept any terms you do not like, so bear in mind that you may have to contact and negotiate with your lender multiple times.
No matter your lender’s decision, always respond to accept or decline. If you decline the offer, explain why so they can review the terms and come up with a mutually satisfying solution. Before accepting the new terms, make sure the modification will help ease your financial hardship enough to make a considerable difference.
Even after you try to reduce your car payments without getting a refinancing loan, you may find that getting a new loan is your best option after all. However, before making the final decision on which route to take, make sure you understand how loan modification works, how to decide if it is the right option for you, and the process for applying for car loan modification. After careful evaluation, if you decide a car refinancing loan is the best choice, this helpful guide can lead you through the process.

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