Negotiate with Your Lender

Your lender might sometimes seem abrasive or uncaring, but they actually want to help. After all, lenders want to retain good customers that will continue to be a source of profits for a very long time. That being said, they are not willing to roll over and give in to just any request.

If you are determined to keep your car, then you will want to negotiate a way to make the loan more affordable. You might ask the lender to modify the loan if your income has dropped for a long period of time. If your hardship is temporary in nature, then you might be able to successfully negotiate a skipped payment. The lender would simply move the skipped payment to the end of the loan.

If you know that the car is simply unaffordable and you have no chance of keeping the car, then you might want to negotiate a way out of the loan. When you have positive equity, this is easy. You just sell the car and pay off the loan balance.

Negative equity exists when you are upside down in the car loan. Perhaps you owe thousands more than the car is worth. You still might be able to negotiate an arrangement that allows you to sell the car.

Consider this Scenario

In July 2010, John's employer blocked all overtime, thereby cutting his income each month. He knew that he could not afford his current car payment of $432 anymore. He called his lender to request a loan modification. However, his lender determined that even a modified car loan would still be unaffordable. Both John and his lender agreed that they wanted to avoid a repossession.

John stated that he tried to sell the car, but that the dealer only offered $10,000 for the car. The loan balance was still $14,000. Through John's negotiations with his lender, they were able to come up with an agreement that would allow for the sale of his car. His lender released the lien on the car and converted the $4,000 shortfall into an unsecured loan that John would make payments of $155 for the next 2 1/2 years.

By negotiating an alternative to repossession, John was able to preserve his credit rating and avoid the huge deficit that can result when a car is repossessed. The lender also was eager to find a compromise that reduced the risk of a large loss.

Had John contacted a loan modification company to negotiate for him, he would have spent an extra $300 or more with no guarantees of any results. Meanwhile, by missing his car payment, John would have risked repossession. In the above scenario, John was able to avoid repossession because he actively communicated with his lender to avoid defaulting on the loan.

Remember that communication with your lender is the most important component to negotiating a resolution. If you ignore your lender, they will assume that you intend to default on your loan contract. That's when the repo man could be just around the corner!