The procedure by which a borrower and lender reach a mutually agreed-upon resolution to pay off a vehicle debt for less than the original amount owed is a negotiation strategy frequently employed when the borrower faces financial hardship. For example, if an individual loses their job and struggles to make payments, they might propose a lump-sum payment significantly lower than the outstanding balance to satisfy the debt.
Successfully concluding this type of agreement can alleviate financial strain on the borrower, preventing potential repossession and minimizing damage to their credit score. Historically, this approach has been viewed as a last resort for lenders, but it is increasingly recognized as a viable option to recover a portion of the outstanding debt rather than incurring the costs and risks associated with repossession and resale of the vehicle. This can also improve a lender’s financial portfolio.
