If you have one of these types of loans, another alternative is to request that the creditor rewrite the loan for the balance owed including all past due amounts with extended terms to accommodate a lower payment. You should also request that the rewritten loan be at a reduced interest rate—it doesn’t hurt to ask. In any case, once re-written, the past due account will be paid-off and the new loan will begin a new reporting history.
If the creditor will not agree to lower payments, they may consider at least rewriting a new loan with payments equal to the old loan. The lender would then take the new loan proceeds and pay off the old loan balance. This may not help in lowering your payment, but it will provide you with a fresh start, with the account reflecting a current status. These options are not always available with all creditors but should be taken into consideration and presented to the creditor (they won’t always offer) when trying to get your credit in order or you simply wish to return your account and creditor relationship to a “good” standing.
Secured Loans after a Repossession
The one exception to “no settlements on mortgage and auto loans rule” is if a piece of property is repossessed to satisfy a secured loan balance, and the sale of the property fails to cover the loan amount, you may find yourself with a collection account for the remainder of the unpaid loan balance. In this case, sometime you can negotiate a settlement with the original creditor, but typically this type of loan is turned over to a collection agency.
Student Loans
Student loans are a completely different kind of loan animal, and in rare cases, fees and penalties might be waived in order to help a student rehabilitate a loan, but that is usually the limit. This document does not cover these kinds of loans. An excellent source of information on student loans and settlement programs can be found at http://www.ed.gov/.
