A high car payment can be a drain on your budget. Fortunately, there are simple steps you can take to reduce it. And if you haven’t taken out a loan yet, you can start with a low monthly payment by shopping around and finding the right lender.
4 Ways to Lower Your Current Car Payment
Your car payment is not fixed. This may change – just speak with your lender or take additional steps to make it more manageable.
1. Renegotiate the terms of your loan
Lenders often allow you to defer a payment when you are having financial difficulty. This may take the pressure off for a month or two, but it may lead to paying more overall. Indeed, interest continues to accrue during the adjournment.
You can also request a modifying your loan. Your lender may be willing to extend your term – which means paying more interest – or lower your interest rate. The latter is better financially, but it can be difficult to qualify if you don’t have good credit.
2. Refinance your car loan
There are two ways refinance your car loan can help reduce your monthly payment. You can get a lower interest rate with the same term remaining on your current loan, which means you pay less each month.
Or you can refinance to a longer loan term. This will certainly reduce your monthly payments, but you will pay more interest overall.
3. Sell or trade in your car
If your car is beyond your budget, you can always sell it and upgrade to a more affordable vehicle. The most convenient way will be to exchange your car for at a dealership. You’ll be able to use that extra cash as a down payment on your next car, and you won’t need to deal with a private sale.
Private sales can earn you more money. Just know that sell a car with a lien above it can be complicated. Talk to your lender to make sure you’re not violating the terms of your contract.
4. Make extra payments when possible
Getting ahead of your car loan will help you lower your future monthly payments — or skip them altogether. Although many lenders only apply additional payments to interest, you can request that yours be paid directly to the principal.
This will help reduce the total amount you owe. It will also give you some much-needed flexibility in the future.
How to get a lower car payment before you buy
Shop smart to get a low payment on your next vehicle. You don’t have to take out the first loan you are offered, and reducing the amount you finance is also a great way to lower your monthly costs.
- Buy a used vehicle. Not only is it much cheaper upfront, but buy a used car will also help you avoid the huge drop in value that new cars face.
- Make a big down payment if you can. The more you pay upfront, the less financing you’ll need, which means lower monthly payments.
- Trade in your current vehicle or sell it privately. Using your current commute to increase your down payment is a great way to keep your next monthly payment low.
- Improve your credit score before applying for a loan. Lenders and dealerships will give you better rates when you have good or excellent credit. If you can, wait to buy a car until your score has jumped a few points.
- Shop around for the best financing. Don’t limit yourself to dealer financing. You increase your chances of getting a good interest rate and a flexible monthly payment by shopping around.
- Opt for a longer loan term, but keep in mind that this means more interests. Although you can reduce your monthly costs, you can pay thousands more what your car is worth with a loan over 60 months.
- Pay sales tax in advance. Lenders will allow you to finance the sales tax on your vehicle, but try not to. You will also end up paying interest, and this will only increase your monthly payment.
- Rent instead of buy. Leasing has a bad reputation, but you can save money on your monthly payments with a lease. However, it can be costly if you don’t have a good credit rating and you won’t be able to sell your car at the end of the lease term.
The bottom line
Since cars should make up less than 25% of your overall budget, keeping your monthly payment low is essential. If you’ve taken out a high-interest loan, refinancing or renegotiating are two of the best solutions. But upgrading to a more modest vehicle is also a solid option that can put more money in your pocket each month.
If you’re looking for a new or used car, think carefully about the overall cost and build up your down payment before you shop. You’ll pay less interest and start with a low monthly payment.