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A loan modification is when any changes are made to the term of a loan between a lender and borrower. Often, if a borrower is having problems making a payment, the lender is willing to adjust the terms of the loan because the bank does not want to be stuck with an outstanding loan.

Loan modifications make it more feasible for borrowers in a financial crisis to make their loan payments. Often, adjustments are made to the interest rates, terms of the loan, balances on the loan, or another aspect of the loan payment.

Why would a bank offer loan modifications?

Lenders don’t want an outstanding loan any more than a borrower does. If a borrower needs to stop making payments, a lender has three options. The lender can try to repossess the property. This is also known as foreclosure. The second option the lender has is to hire an agency to collect the money that is owed. A third option is for the lender to give up and take the loss. One final option is for the lender to wait until the borrower declares bankruptcy, and in this case, the lender will get very little of the debt, if anything at all.

With such limited options, it is understandable why the lender would choose to make modifications to a loan if the borrower is still willing to pay their

How can a person get a loan modification?

The best way to get a loan modification is to simply ask the lender. If you are having financial trouble, simply contact the bank and explain your financial situation. The bank may have some sort of formal documentation that must be filled out, or may require that the request be made in writing. However, the best way of knowing is to call the lender and have an open, honest conversation with an account representative.

Tips when asking for a loan modification

A good way to approach requesting a loan modification is to make a presentation outlining why making payments is a problem. It will help to gather the details on your monthly income, as well as how it is earned. Also break down your monthly expenses by category, such as your mortgage, groceries, utilities, etc. It will also help to bring pay stubs, bank statements, and loan statements and agreements.

After you make your request, it may take a few weeks for the bank to make a final decision. Be sure to ask the bank if you should still be making payments at that time.

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