Buying a car can be costly. It’s no wonder a lot of people purchase a car with an auto loan. Between your car loan payment, car insurance, gas prices (and the occasional snack), your monthly costs to travel from point A to B can add up fast. If your debt has you feeling like you’re spinning out of control, lowering your car payment is one way to help make your dollar stretch farther.
Whether you’re curious about lowering your monthly car payment or you’re struggling to afford it, we’ve outlined nine strategies to help you slam the brakes on high car payments.
How To Lower Your Car Payment Before You Buy
The best time to get a lower car payment is before you buy a car because you can compare loan terms. Most people don’t think about car loan terms until they’re signing the paperwork at a dealership. And by then, it may be too late.
Take a look at some strategies to lower your car payment before you drive off the lot.
For most of us, buying a car is a pretty significant purchase. And, yes, we are absolutely hinting at car sticker prices. Shopping around and comparing car deals can help you make a wallet-friendly purchase.
Try bypassing dealers and buying a car from an owner. Private sellers might offer lower sales prices than dealerships. Which would likely mean you wouldn’t need to borrow as much money. Which would likely mean lower payments. Look for ads in online marketplaces or drive around to find owners selling their cars.
Once you’ve got the price handled, start shopping around for the best loan terms and lenders. Compare loan interest rates, repayment terms, associated fees and loan qualifications. All of these factors will vary by lender. Your loan terms will be based mostly on your credit score and income, so it’s good to know where you stand before you choose a loan and lender.
Buy a used car
Buying a used car is pretty much guaranteed to be the cheaper purchase. You’ll borrow less, and as a result, your monthly payment will be lower than it would be if you bought an expensive, newer model.
Plus, new cars depreciate (lose their value) as soon as you drive them off the lot. That’s bad news if you want to resell them, so try to steer clear of them when buying. However, this is good news for used car buyers. Buying a used car, even one that’s more gently used than jalopy, will usually cost less than buying brand new.
Increase your down payment
Making a larger down payment on your car loan can decrease the amount of money you borrow. Because you’re borrowing less, your monthly payments will be lower and you’ll pay interest on less, which can save you even more money.
It may also be a good idea to pay your sales tax upfront. If not, it gets added to your loan payments, and you have to make interest payments on it.
Get a longer loan repayment term
A lender will likely show you what your monthly payments will look like with different loan terms (36 months, 60 months, etc.). The longer your loan repayment term is, the lower your monthly payments will be because they’re spread out over a lengthier period of time.
But a longer loan term means you’ll pay more in interest over the life of your loan, and you run the risk of going upside-down on your loan. You may find yourself owing more than your car is worth because its value depreciated quicker than you could pay off your loan.
How To Lower Your Current Car Payment
Even after you get a loan, your car payment isn’t engraved in stone. If you’ve already bought your car, here are some strategies to help lower your monthly payment:
Talk to your lender
If you already have a car payment, refinancing, renegotiating or switching to a less expensive car can help lower it.
You may be able to renegotiate your loan terms with your lender, which is also known as loan restructuring. You can try to negotiate a lower interest rate or a longer repayment period to help lower your monthly payments.
Getting a lower interest rate may be more challenging if you have bad credit, so negotiating a longer repayment period could be your best bet. Remember, while extending your repayment period gets you a lower monthly payment, it also means you’ll pay more interest over the life of your loan.
When you refinance your car loan, you get a new loan to replace your existing loan. If interest rates have dropped since you first got your loan or your credit score has improved since then, it may be a good time to refinance.
Similar to restructuring, you may be able to get a lower interest rate or a longer repayment period to help lower your monthly payments. But a refinance is a new loan – and with new loans come new loan fees like an origination fee.
Your current lender might not offer the best loan terms. Pro tip: Shop different auto refinancing lenders and look for the best loan terms you can qualify for. If you can prequalify with a lender, consider prequalifying. You’ll provide the lender with some basic financial and credit information, and they’ll provide you with an estimated interest rate. All of this happens before you apply for the loan and before they run a hard inquiry on your credit report.
Trade in or sell your car for a cheaper one
Trading in or selling your car for a less expensive car with lower payments might help you avoid late or missed payments or defaulting on your car loan.
Here’s what you need to know if you decide to go down that route:
- Research: Learn the value of your car using online tools like Kelley Blue Book before you put your car up for sale. It’s a good way to figure out how much money you’ll potentially have to put toward paying off your loan.
- Talk to your lender: Let them know that you plan on selling your car. They’ll tell you how much you’ve got left to pay off the car loan because – spoiler alert – you still need to pay off your loan even after you sell your car. If your lender placed a lien on your car, which is the lender’s right to own your car until your loan is paid off, that might complicate the sale for you because you technically don’t have the right to sell the car. So make sure you’re not violating your loan agreement. Work with your lender to figure out what steps you need to take to legally sell your car.
- Pick your selling option: There are many ways to sell a car, and some are more convenient than others. You may be able to sell through an online service like Carvana that will pick your car up from your house. You can sell it to a dealership or sell it privately. A private sale might even get you more money for your car.
If you owe more than your car is worth (aka you’re upside-down on your loan or underwater) you can opt to fold what you still owe on the car into a new loan. But if you can help it, try to avoid this strategy and pay off the remaining balance with cash. Rolling negative equity into a new loan can end up costing you more because you’re making interest payments on it over the length of the loan.
If you don’t want to sell your car, see if you can trade it in at a dealership that has a car you want to purchase. Look up your car’s trade-in value (you can do this on Kelley Blue Book) to make sure the dealer is making a fair offer.
Lease a car instead
Sell or trade in your car, and instead of buying, lease a car instead. Car leases typically have lower monthly payments than car loans because you don’t plan to own the car. You return the car to the dealer at the end of the lease’s term.
In fact, leasing a car might be a more financially savvy option than buying a new or used car in the first place.
Make extra payments when possible
If you can afford to make extra payments now, you’ll help future-proof your monthly payments by lowering them, especially if you expect to experience a dip in income in the near future.
Many lenders only apply extra payments to interest. Talk to your lender about applying your extra payments to the principal balance instead.
When you make extra payments, you pay off your loan faster and potentially save hundreds or thousands on interest payments. But before you devote your disposable income to your car loan, read your loan agreement. Some lenders charge prepayment penalties for early loan payoffs.
Don’t Get Duped at the Dealership
While it may be nice to have a new expensive car, your car payments shouldn’t eat up most of your budget.
The good news is that you aren’t locked into your car payment for life.
If your car payment is too high, talk to your lender about your financial situation as soon as possible. They can work with you to figure out a plan to help lower your payment.
The Short Version
- The best time to get a lower car payment is before you buy a car because you can compare loan terms
- If you already have a car payment, refinancing, renegotiating or switching to a less expensive car can help lower it
- If your car payment is too high, talk to your lender about your financial situation as soon as possible. They can work with you to figure out a plan to help lower your payment