Can You Get Car Loans Forgiven?

What Types of Debt Can Be Forgiven?

Unsecured debt—the kind not backed by collateral—like credit cards, personal loans and student loans is generally the only type of debt that may be forgiven. Secured debt, such as a car loan, can't typically be forgiven because the lender has the right to take the property securing the loan to pay off the amount you owe.

What Is a Car Loan Hardship Program?

Car loan hardship programs offer financial relief to borrowers who are struggling to make their payments. Because relief programs vary by financial institution, it's crucial that you speak with your lender directly if you're experiencing a financial hardship to find out what (if any) type of assistance may be available. Here are some options your lender may offer.

Due Date Change

If a cash flow crunch is the reason you're struggling to make your payments, changing your loan's due date may provide a simple solution. For example, if your car loan payment is due on the 10th of the month and you get paid on the 15th, moving the due date to the 16th can help ensure you have enough cash on hand when the payment is due.

Deferments/Extensions

A payment deferral or extension allows you to skip one or more payments during your loan term and have them added to the end of your term. Deferring payments extends the maturity date of your loan, but it can provide much-needed financial relief while you get your finances back on track.

Example: Let's say you take out a 48-month auto loan on May 10, 2025. Your last scheduled payment would be May 10, 2029. However, you skip your payments (with your lender's permission) during months 13, 14 and 15. Those three payments get added to the end of your loan term, making your final payment due August 10, 2025.

Tip: Lenders that grant car loan deferrals typically require you to to be current on payments first, and deferred payments will continue to accrue interest and possibly fees.

Loan Modification

A loan modification is a change to your loan agreement. A loan can be modified in multiple ways, including by reducing your interest rate to lower your monthly payment or extending your loan term to make your monthly payments more affordable. Before proceeding, however, be aware that loan modification has the potential to harm your credit score because the loan isn't being paid off as initially agreed.

Payment Plan

Your lender may be willing to work out a payment plan that's different from the one outlined in your loan agreement. This may involve making partial payments for several months. Depending on the agreement with the lender, your modified payments may last several months or until you pay off your loan.

How Do You Qualify for a Car Loan Hardship Program?

Car loan hardship programs may not be available to all borrowers. Each lender has its own qualification guidelines and application processes, but generally, here are steps you'll need to take to qualify.

• Contact your lender. Reach out to your lender right away if you think you won't be able to make your next car payment and explain why. It's best to do this before you miss a payment. If your lender is willing to work with you, you may be able to keep your account current and avoid damaging your credit.
• Demonstrate financial hardship. You typically need to have a good reason for not being able to make your payment such as a job loss, income reduction, medical crisis or other emergency.
• If possible, bring your account current. This varies by lender, but you may not be eligible for assistance if your account is too far past due, so it's crucial that you contact your lender as soon as you realize you may be in financial trouble. Don't wait until after you miss a payment, if possible.
• Show proof of auto insurance. Borrowers without the minimum amount of insurance required by their state may not qualify for assistance.
• Provide the required information. Lenders typically require you to complete a hardship application where you provide employment and income information. You may also need to provide proof of insurance and other documentation that demonstrates why you can't make your payments.

Learn more: Steps to Take Immediately if You've Lost Your Income

Alternatives to Car Loan Hardship Programs

A car loan hardship program may be a good option if your financial troubles are temporary. But it's not your only option, and if you expect your struggles to continue, it may be a good idea to explore alternatives.

• Refinance your loan. If you have good credit, you may be able to qualify for a lower interest rate, which will reduce your monthly payments. Another option for making your monthly payments more affordable is extending your loan term. However, that will increase the amount of interest you'll pay over the loan term and increase the chance you'll become upside down on your loan. If you opt for a loan with a longer term, be sure you understand the risks.
• Sell the vehicle. Before putting a "for sale" sign in the window, check to see how much your car is worth. If you can sell it for what you owe (or more), this may be a good option to avoid defaulting on your loan and damaging your credit. However, if you sell it for less than what you owe, you'll need to pay the lender the difference.
• Borrow from friends or family. You may not relish the idea of asking your friends and family for financial help, but it could help you avoid defaulting and allow you to keep your car.
• Return your car to the lender. This is known as a voluntary repossession, and allows you, not your lender, to decide when the car will be repossessed. It's important to understand that you'll need to pay the difference between what the lender sells the car for and what you owe if the sale doesn't cover the remaining loan balance. Your credit will still take a hit with a voluntary repossession, but it could save you the hassle and embarrassment of an untimely repo.

Learn more: How Bad Is It to Default on a Car Loan?

The Bottom Line

If you're experiencing financial difficulty, it's best to let your lender know sooner rather than later. Although your lender may not forgive your loan, they may be able to offer alternative assistance that can help prevent you from defaulting on your loan and maintain possession of your vehicle while you get your finances back on track.

Throughout the process, keep a close eye on your credit. Missing payments can lead to credit score harm, as can a change to your loan agreement that means your loan will not be repaid as originally agreed.