• Auto Loan Modification: A Definition

    Auto loan modification is the alteration of a retail finance contract based on the borrower’s inability to continue payment per the terms of the finance agreement. The inability can be caused by any reason, but modifications are most common after changes in income, employment status, personal injury or family emergencies. While auto lenders are not required to complete loan modifications, it is in the best interest of all involved parties to allow the borrower to keep their vehicle(s), even if modifications are required.

    Auto loan modifications normally take the shape of a short-term payment deferment, reductions in any late fees and penalties that have been applied to the account, lengthening the term of the loan, reducing the remaining balance or reducing the interest rate on the impacted loan. Such modifications are made because a lender would rather have a loyal client who is making consistent payments on their car than a client from whom a vehicle is repossessed, as repossessed vehicles are rarely sold for an amount near their remaining payoff when they are auctioned.

    As loan modifications are a form of debt settlement, some lenders may report them as such on your credit report, which could make it more difficult to secure a future auto loan.

    Be sure to contact your lender regarding loan modification options. Some lenders, such as CapitalOne, have very strict requirements and rarely allow loan modifications. Smaller regional banks and credit unions may consider you to be more a face and less of a number and, likewise, they may have more flexible modification options. In any case, contact your lender and see what options they can offer you.