What is an Auto Loan Modification?

You may already be familiar with the traditional loan modification process that many people go through in order to keep from losing their homes, but you might not know that you can do the same thing with your car. An auto loan modification could be a good choice for you if you’re nearing the three month mark on car payment delinquency with no way to realistically catch your payments up. But should you go through with it? Before making a decision, you should take a hard look at your situation.

Check Out Your Interest Rate

Are you paying an unreasonable amount of interest on your car loan? If you are, there’s a chance that your current rate could go down if your auto loan modification goes through. Your car lender wants you to be able to afford your payments so you don’t keep falling behind, and a lower interest rate may help make that happen.

Assess Your Monthly Payments

Are your monthly car payments more than you can afford? When you go through the modification process, your lender will want to see a detailed worksheet of your income versus your expenses. If it’s clear you really can’t afford your car payment, you could end up with a lower payment that’s more within the range of what you can afford.

Determine Whether or Not the Modification Will Really Help

An auto loan modification is probably not a good idea if you can see that you’re just going to wind up behind again. Some people fall behind on car payments not because they can’t afford their cars, but because they can’t afford other things they’re trying to pay for, like houses, short term signature loans, or astronomically high credit card debt. Before you modify your car loan, look closely at your other debts to see if they’re actually what’s keeping you from making your payments on time. If it looks like your other bills are the main source of your problems, begin dealing with those first and worry about your car loan later.

Watch Your Back

If you do decide to go through with the loan modification process, be careful. According to the Better Business Bureau, there are a great number of fraudulent companies operating under the guise of legitimate auto modification companies. It’s best to try to do a modification through your car lender first. If that doesn’t work out, do lots of extensive research on any other companies you might consider to ensure they’re trustworthy.