Shopping Around for the Best Auto Loan Relief Programs[yoast-breadcrumb]
Shopping Around for the Best Auto Loan Relief Programs
If you’re struggling to make your monthly car payments, you’re not alone. Many folks are feeling the pinch these days with rising costs and economic uncertainty. But there are options to get relief on your auto loan and make your payments more manageable. This article will walk you through how to find the best auto loan relief programs so you can get back on track financially.
Understand Refinancing vs Loan Modification
There are two main ways lenders can adjust your existing auto loan terms – refinancing and loan modification. Here’s a quick rundown of how each works:
- Refinancing – You take out a new loan to pay off your current one. This allows you to change the interest rate, loan term, monthly payment, etc. You’ll go through a new application process and credit check.
- Loan Modification – Your lender adjusts the terms of your existing loan, such as extending the repayment period or reducing the interest rate. No new loan or credit check needed.
Refinancing tends to offer more flexibility to improve your terms, but also involves more time and paperwork. Loan modifications are easier to obtain, but your lender has final say on any changes. Keep both options in mind as you explore programs.
Compare Relief Programs from Lenders
Many top lenders like banks and credit unions offer special hardship programs to help borrowers in financial distress. These programs can modify or refinance your loan with better terms. Be sure to check relief options from your current lender as well as others you may qualify with.
For example, Wells Fargo has loan modification and refinance programs to reduce payments by up to $150 per month. They also offer options to temporarily suspend 1-2 payments in cases of hardship . Credit unions are another great place to find relief programs – Navy Federal Credit Union offers up to 2 payment deferrals and extensions on loan terms for eligible members.
Spend some time researching lender websites and talking to customer service reps about available relief options. Having multiple offers in hand will allow you to compare and negotiate the best deal.
Work with Non-Profit Credit Counselors
Non-profit credit counseling agencies are another excellent resource for auto loan assistance. They have programs to help create budgets, negotiate with creditors, and consolidate debt through Debt Management Plans (DMPs). Some of the top agencies include:
- National Foundation for Credit Counseling – Network of accredited counselors with sliding scale fees based on ability to pay.
- Money Management International – Free counseling and DMPs. Spanish services available.
- GreenPath Financial Wellness – Known for excellent customer service and availability in all 50 states.
Counselors can act as liaisons between you and auto lenders to request reduced payments, interest rates, waived fees, and other concessions. They can also help organize your finances, budget for a car payment you can handle, and advise on all available relief options.
Explore Refinancing with Online Lenders
Online lending networks like myAutoloan.com and LendingTree provide instant rate comparisons from multiple lenders to help you refinance and lower your payment. With a single online form, you can check rates from up to four lenders at once. Online lenders tend to offer quick approvals and funding too – LendingTree advertises approval in minutes with no impact to your credit score.
To find the best deal, get rate quotes from several online networks as well as individual lender websites. Online lenders have the convenience factor, but you may find even lower rates through traditional banks and credit unions.
Ask Your Lender for Assistance
Don’t overlook asking your current auto lender for help – they want to keep you as a customer. Be honest about your financial situation and ask if they can modify the loan terms or refinance the loan directly. Many lenders are willing to work with borrowers, especially if you’ve made regular on-time payments.
When you call, explain how the payment is no longer affordable and ask what programs or options are available. Be prepared with information on your income, expenses, and how much you can realistically pay each month. You can also ask for a deferment to temporarily pause payments while sorting out more permanent relief options.
Sell Your Car and Pay Off the Loan
If your loan balance is less than the car’s value, selling the vehicle and paying off the loan may be the quickest route to relief. Use resources like Kelley Blue Book (www.kbb.com) and Edmunds (www.edmunds.com) to estimate your car’s market value based on make, model, mileage, condition, etc .
You can sell to a private party or trade it in at a dealership. Private sale will likely get you more money. Have the buyer pay off your loan directly with the lender to transfer the title properly. Make sure to get documentation from the lender that the loan has been paid in full.
Voluntary Repossession as a Last Resort
If your loan balance is higher than the car’s value, voluntary repossession may be an option. This involves voluntarily surrendering the vehicle to the lender. They will sell the car and your loan obligation will be considered settled, even if you still owed more than the sale amount.
Voluntary repossession should be a last resort since it will severely hurt your credit score for years. Explore all other relief options first, and consult a credit counselor or attorney before choosing this path. Make sure the lender provides written confirmation that repossession satisfies your loan so you’re not on the hook for any balance.
Seek Legal Help if Necessary
If you and the lender simply cannot agree on affordable loan terms, don’t hesitate to seek help from legal aid organizations or consumer protection attorneys. They can review your case, negotiate with the lender, and provide advice if you need to take legal action.
You may qualify for free or low-cost legal assistance from organizations like Legal Aid (www.legalaid.org), state bar associations, law school clinics, and the National Association of Consumer Advocates (www.consumeradvocates.org). An attorney can help ensure your rights are protected throughout the process.
Avoid Scams and High-Fee Companies
Be wary of any company that promises to “get you out of” your auto loan but charges large upfront fees. Many of these are scams that take your money without providing help. Stick to reputable non-profits and lenders – their relief programs should be free or low-cost.
Also avoid debt settlement and consolidation companies claiming they can negotiate reduced payoffs on your behalf. Most of these settle for less than full loan payoffs, which won’t release your lien or ownership obligation to the lender.
Improve Your Credit to Refinance Later
If you can’t refinance to better terms now, you may have success later by improving your credit first. Getting current on payments, paying down balances, and avoiding new credit applications can boost your score over time. Track your progress with free monitoring through Credit Karma.
Aim for at least a 620 credit score before revisiting refinance options. Lenders like Lightstream and PenFed offer refinances to borrowers with credit scores in the low 600s. With some diligent credit repair work, you may qualify for a much lower rate.
Communicate with Your Lender
Open communication with your lender is key when seeking auto loan relief. Be proactive about informing them of financial struggles before you miss payments. Ask questions, explain your situation, and confirm any agreements in writing.
If a lender seems unwilling to work with you, don’t hesitate to take your business elsewhere. Just make sure to get documentation from the old lender showing a $0 balance before refinancing.
Create a Budget You Can Stick To
Work with a credit counselor or financial advisor to create a household budget that allows you to realistically make a monthly car payment along with other necessities. Having this budget will help guide discussions with lenders on a payment amount you can maintain.
Online budgeting tools like Mint (www.mint.com) and EveryDollar (www.everydollar.com) can help you analyze expenses, find savings, and set spending targets. Maintaining your budget after loan relief will help avoid future financial strain.
Understand All Terms and Implications
Carefully read and understand any agreements before signing. Seek clarification from lenders on unclear or complex terms. Get all verbal promises in writing. Know the implications for your credit score and any fees involved.
A credit counselor or attorney can help explain all options and legal impacts. Never feel rushed into signing without fully grasping what you’re agreeing to.
Explore Federal Borrower Protections
Federal consumer protection laws like the Servicemembers Civil Relief Act and the CARES Act provide certain borrower rights and relief options, depending on your circumstances:
- Active military can cap loan interest rates and pause payments – 
- Federal student loan borrowers can pause payments and accrue no interest – 
- All borrowers had options to pause payments and avoid repossession early in the pandemic – 
Understanding these protections can help you request appropriate relief from lenders. Non-profit credit counselors keep up with changing federal guidelines affecting borrowers.
Avoid Future Financial Strains
After getting your current auto loan under control, be diligent about avoiding financial pitfalls down the road:
- Shop for the total loan cost, not just monthly payments, when financing a car.
- Aim for loan terms of 3 years or less to avoid being underwater on the loan.
- Build up emergency savings to handle unexpected expenses.
- Keep your credit score high by making payments on time and limiting credit applications.
- Review insurance costs – higher liability coverage can lower premiums.
- Consider buying cheaper used vehicles to reduce loan amounts.
Learning from the experience of overextending on your current auto loan can help you make wise financial decisions on future vehicle purchases and loans.
The Bottom Line
If your auto loan has become unaffordable, take heart in knowing there are options to get relief. Comparing refinance and modification programs, working with non-profit counselors, communicating with your lender, and improving your credit score can help you find a solution. With some persistence and creativity, you can get your payments back within budget.