Comparing the Pros and Cons of Auto Loan Modification

If you are facing a repossession, it might be time to consider an auto loan modification. Auto loan modification works in much the same way as mortgage modification works. It can help you get out of trouble when you have made a few financial miscues along the way. While it can be a beneficial strategy to help you get you back on your feet, there are a few drawbacks to the method as well. Here are the pros and cons of auto loan modification.

Pros

  • Keep your car- The biggest benefit of this method is that you get to keep your car. When you end up losing your car to repossession, there are many more negative effects that usually follow. You may not be able to go to work which will compound your problem even more. It will be harder to buy groceries and do a lot of ordinary tasks that you take for granted. With an auto loan modification, you can avoid these problems and keep your primary means of transportation.
  • Lower payment- When you successfully complete an auto loan modification, you will be able to have a more affordable payment by the time you are done. Having a lower monthly payment will make it easier to get by every month. You will have more flexibility in your budget and you will be able to avoid these problems in the future. 
  • Lower interest rate- In addition to a lower payment, they will also often lower your interest rate. Lowering the interest rate that you pay will significantly lower the amount of money that you pay over the course of your loan. Any time that you can save money you will be better off. 

Cons

  • Hurt your credit- Although a loan modification is better than having a repossession on your record, it is still going to tarnish your record. Lenders will see that you were not able to live up to the original terms of the loan that you had. Therefore, they will take notice of this in the future when you want to borrow again. Expect to pay higher interest rates in the future as well as coming up with more money in deposits and down payments.
  • High fees- Many people choose to go about their auto loan modification with the help of a loss mitigation company. This type of company steps in and negotiates everything with the bank for you. They will get all of the information about your loan, call the bank and negotiate new terms for the loan. While this can be easy for you, it often results in some high fees as well. Expect to pay handsomely for someone to come in and handle everything for you. 
  • Bad loan terms- Sometimes the bank will offer you new terms that are actually in their best interest. They could give you a promotional rate at first and then charge you more on the back end. Just be careful before you agree to anything.

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