Always Get Auto Loan Relief Agreements in Writing Before Making Payments

Falling behind on your car payments can be super stressful. Life happens, and sometimes you just can’t scrape together enough cash to make the monthly payment on your auto loan. If this happens to you, it’s important to know that you have options for getting relief on your car loan. But there’s one key thing to remember: always, always, always get any agreement for loan relief in writing before sending any payments.

I cannot emphasize this enough, folks. Getting that agreement in writing is crucial. Here’s why:

• It protects you legally if the lender doesn’t honor the agreement
• It spells out exactly what each party is agreeing to
• It prevents misunderstandings down the road

Let me give you an example. Let’s say you call up your lender, Acme Loans, and speak to a customer service rep. You explain that you lost your job and can only afford to pay $200 per month right now instead of your usual $450 monthly payment. The rep says no problem, we can put you on a reduced payment plan for the next six months. You breathe a sigh of relief and mail them a check for $200.

But next month, Acme Loans sends you a past due notice saying you owe the full $450 plus a late fee. When you call to explain the agreement you made, the customer service rep says they have no record of that conversation. And since you don’t have anything in writing, you have no proof that the agreement was made.

See what I mean? Getting it in writing protects you.

Ok, so let’s talk about some common options for auto loan relief and how to make sure you get agreements in writing:

Payment Extensions or Deferrals

If you’re going through a temporary hardship, many lenders will allow you to defer or extend one or more monthly payments to the end of the loan period. So if you defer a payment, you skip making that payment now and your loan is extended by one month. This provides short-term relief without changing the overall loan terms.

To do this, call up your lender and explain your situation. Tell them you would like to request a 30-day payment deferral or extension. Make sure to get the name of the representative you speak with. After the call, follow up with a letter or email confirming the agreement. Be sure to include:

• The specific payment months that are being deferred or extended
• The new loan end date after the deferral
• The name of the representative you spoke with

Ask them to confirm the agreement in writing. Do not send any modified payments until you have written confirmation.

Interest Rate Reduction

If you’ve experienced a long-term loss of income, your lender may agree to lower your interest rate for the remainder of the loan period. This will lower your monthly payments. Again, call the lender to make this request and follow up in writing to confirm the specifics:

• The new reduced interest rate
• The effective date of the new rate
• Any other modified loan terms

Wait for the written confirmation before sending your new payment amount.

Extended Repayment Plan

For longer-term relief, your lender may allow you to extend the overall loan repayment period. So if you had a 5 year loan initially, they may allow you to extend it to 6 or 7 years. This lowers your monthly payments by spreading them out over a longer time.

Follow the same process of calling to make the request, and sending a confirmation letter with details like:

• The new loan repayment period
• The new monthly payment amount
• Any other changes to the interest rate or loan terms

Do not start sending the new monthly payment until you have the written agreement.

Partial Loan Forgiveness

In some cases, your lender may agree to forgive a portion of your remaining loan balance. Let’s say you owe $15,000 left on the loan, they may offer to forgive $3,000 and have you repay the remaining $12,000. This obviously reduces the amount you have to pay back.

To pursue this option, explain your financial hardship and ask if they would consider partial loan forgiveness of a specific dollar amount. Follow up in writing to verify the new loan balance and any other modified terms.

Hold off on making further payments until you have their written confirmation.

Refinancing or Modifying the Loan

Refinancing your auto loan or modifying the original loan terms are other options for relief. You can work with your current lender to refinance the loan or modify the loan agreement. Or you can work with a different lender to pay off your current loan and replace it with a new one.

To refinance or modify the loan, you’ll go through an application process similar to when you originally financed the car. The lender will want to see proof of income and assess your ability to repay. This allows them to modify the loan terms as needed to make the payments more affordable.

Be sure to get the full modified loan agreement in writing before moving forward. This should outline:

• The new loan amount
• Interest rate
• Monthly payment
• Repayment period
• Other loan terms

Carefully review the new loan agreement before signing. Don’t start making payments until the agreement is signed and formalized in writing.

Voluntary Repossession

If your financial situation has become dire, you may need to consider voluntarily surrendering the vehicle. The lender will sell the car and apply the proceeds to your outstanding loan balance. However, you will still be responsible for any remaining loan balance if the car sells for less than what you owe.

Before voluntarily repossessing the car:

• Review your loan agreement to understand any fees for early termination.
• Contact the lender to start the process.
• Get written documentation of the repossession terms including the fees you will be responsible for and the process for selling the vehicle.

Make sure you are clear on the full amount you will still owe so you aren’t surprised later.

Defaulting on the Loan

If you are unable to get approved for any relief options, can’t keep up with modified payments, or don’t want to voluntarily surrender the car, your last resort may be to default on the loan.

This will severely damage your credit and the lender will likely repossess the car. You will still be responsible for paying any loan balance deficiency after they sell the repossessed car.

Before choosing this option, be very clear on the consequences by reviewing your loan agreement. Also check your state laws – some states prohibit lenders from collecting loan deficiencies.

If you decide to default, I recommend sending a written notice to the lender informing them of your intent before you actually stop making payments.

Avoid Scams!

Beware of any company that promises to make your car payments for you or otherwise take over your loan. Many of these are scams that will take your money without actually paying off your loan. Then you will end up in default anyway.

Contact your lender directly to explore relief options – don’t trust a third party company claiming they can negotiate with the lender on your behalf. Any agreement should be between you and the lender directly.

Consult an Attorney

If your lender is unwilling to work with you on relief options, consider consulting with an attorney, especially if the lender is violating any consumer protection laws in your state.

An attorney can help you negotiate with the lender or at least fully understand your rights and responsibilities so you can make the best decision.

I hope these tips help you get clear written agreements for any auto loan relief. Dealing with financial hardship is tough, but getting agreements in writing prevents extra stress and headaches down the road.

Let me know in the comments if you have any other questions!

[1] https://www.consumerfinance.gov/about-us/blog/worried-about-making-your-auto-loan-payments-your-lender-may-have-options-to-help/

[2] https://www.nerdwallet.com/article/loans/auto-loans/auto-loan-debt-relief

[3] https://www.consumerfinance.gov/ask-cfpb/what-should-i-do-if-i-cant-make-my-car-payments-en-849/

[4] https://www.marketwatch.com/guides/car-loans/how-to-get-out-of-a-car-loan/

[5] https://www.debt.org/credit/loans/auto/cant-pay-my-car-payment/

[6] https://www.bankrate.com/loans/auto-loans/walking-away-from-an-auto-loan-or-lease/