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If you’re like most people, your car payment is a big chunk of your monthly budget.
That’s why it’s important to do everything you can to make that payment more affordable.
Here are the best tips that will help you lower your car payment for people still looking for their next car and for those who already have a monthly car payment.
In either case, you can rest assured knowing you are keeping more money in your pocket.
Table of Contents
10 Tips To Lower Your Car Payment
How To Make Your Car Loan More Affordable
If you are still shopping for your next car and know you want to make your monthly payment as low as possible, here are the best ways to make this a reality.
#1. Buy A Car You Can Afford
The easiest thing you can do to ensure you have low monthly payments on your new loan is to buy a car you can afford.
Too many times people walk into car dealerships without an idea of what they want and end up walking out with either or a higher end model, or a model with all the options.
This isn’t to say you have to buy a less expensive car necessarily, but it does mean to research cars before you step into the car dealership.
For example, it can be easy to be talked into having an eight-way adjustable seat, but do you really need it?
By thinking about what you really need in a new car you can better stay within budget.
#2. Find A Great Loan Offer
Another mistake many people make is accepting the auto loan at the dealer.
You should shop around at various banks, credit unions, and the dealer and compare offers.
No one will offer you the exact same loan terms, so it is important to shop around.
You might be surprised to find your local bank offers you better interest rates than the dealer does, which will not only lower your car payment, but also save you money over the life of the auto loan too.
With that said, make sure you understand the dealer financing option.
Many times you can get additional discounts on your next car purchase when you finance through the dealer.
These discounts could make their financing offer a better choice.
#3. Don’t Lengthen The Term
A common trick car dealers use to lower monthly payments is to extend the loan.
Here is how this looks.
Let’s say you are buying a $30,000 at 4% interest for 48 months.
Your monthly payment is going to be $677.
But if you extend this loan out to 84 months, your monthly payment drops to $410.
This looks like a great option since it achieves your goal of a lower car payment.
But there is a catch.
The catch is you will be paying off this auto loan for 7 years.
If you decide to sell your car before 7 years, you will have to pay off this loan first.
And in some cases, you will end up with negative equity.
What is negative equity?
It is when you owe more on vehicle than it is worth.
Since your car depreciates as you drive it, the resale value gets smaller and smaller.
In some cases, you might owe $8,000 and the car is only worth $5,000.
When this happens, you either have to roll the $3,000 into a new loan or come up with $3,000 to pay off the loan.
In the case of rolling it over, this is trouble too.
The $30,000 now has a $33,000 loan on it, again forcing you into negative equity.
In addition to this, your new loan amount will be higher, and so too will your monthly payment.
#4. Make A Larger Down Payment
Another simple solution to lower car payments is to make a larger down payment.
Many people only use the trade in as their down payment amount.
If you can find a way to come up with extra cash, you can significantly lower your monthly payments.
Let’s look at the $30,000 example again.
Assume the car is selling for $35,000 and the trade in value of your car is $5,000.
For a loan term of 48 months, you are looking at $677 for your monthly payment.
Now assume you can put down another $7,000.
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Now your car loan will be for $23,000 and the monthly payment will be $519.
By putting more down, you lowered your car payment by over $150 a month.
Just don’t make the mistake of using all of your savings in order to make a bigger down payment.
You want to have savings for financial protection.
If you really want to make a larger down payment, consider getting a side hustle and using that money.
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#5. Improve Your Credit
Improving your credit score is another smart thing you can do to lower your car payment.
Since you pay interest in addition to the principal every month, the lower the interest rate you can get, the less expensive the auto loan will be.
For example, on a $30,000 auto loan for 48 months, the difference in your car loan payment having 3% interest rate versus 5% interest rate is $25 a month.
To some, $25 a month might not sound like a lot, but when money is tight, every dollar counts.
And over the life of the loan, it makes a bigger difference.
Total interest is close to $1,300 less with the lower rate auto loan.
So if you want to save money, make sure you get your credit score as high as possible.
In fact, you should check your credit report before you even begin shopping for a loan.
This will let you know what your credit history looks like and what you can start doing to improve it.
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#6. Buy A Cheaper Car
Most people live their live on a new car or used car cycle, where they are constantly buying cars every 5-10 years.
If you assume a car costs $25,000 and you buy a car every 8 years, you are going to buy 7 cars if you are 25 years old and live to 80.
That’s $175,000 total car purchase amount in your lifetime.
And it doesn’t even account for paying interest too.
A better option is to buy a cheap car and never have a car payment again.
Granted you will have a low monthly payment to start, but after a few years, you can avoid car payments altogether.
I go into more detail about how to make this a reality for you in the post below.
Alternatively, you could go the beater car route. This would allow you to save thousands and ideally, not take out a loan at all.
How To Lower Your Car Payment After You Buy
The solutions above are great if you don’t yet have a loan.
But what if you have an existing car loan?
What are the things you can do to lower your monthly payment?
Here are some ideas to consider.
#1. Call Your Car Loan Provider
The first thing you can do is reach out to your current lender.
Tell them you are having trouble with your high car payment and see if there is anything they can do to help you.
Depending on your financial situation, they may allow you to defer payments for a while.
Or if you paid a significant portion of your loan balance, they might be able to recast your loan.
This will give you lower payments without having to do anything else.
While there is no guarantee this will work, it is worth a try.
After all, a lender would rather have you make payments and lower your loan balance than have it go into default and have to repossess the vehicle.
#2. Refinance Your Existing Loan
If the above option doesn’t work, shop around to see if you can get a better deal by refinancing your current car payment.
There are many lenders who specialize in refinancing car loans and can help you out.
You could even consider a personal loan as well, since these types of loans don’t have high interest charges tied to them.
Many times you can get a lower interest rate.
And even if your rate is the same, you should be able to have lower payments as you will be financing a smaller amount.
Just make sure you don’t extend the terms.
Refinancing your current loan for a long time is one of the worst financial decisions you can make.
This is because you run the risk of having a higher remaining balance than the car is worth.
Plus you are setting yourself up for more payments.
Instead try to keep the same length if at all possible.
Finally, make sure your credit score is good as the better your score, the better the interest rate you will get.
#3. Sell The Car
This might sound extreme, but you might want to consider selling your car.
You could sell it, pay off the loan, and the remaining money, use it as a down payment to buy a less expensive car.
Even if doing so means taking out a new auto loan, if you don’t buy an expensive vehicle, you could have a lower monthly payment.
#4. Work A Side Hustle
If you love the car you have, you could work a side hustle to bring in extra money.
This money could be used to make extra payments and pay off the loan faster.
You could treat any raises you earn or windfalls you receive the same way too.
At the end of the day, there are many ways for how to lower your car payment.
With vehicle prices increasing every year, a new car loan amount is only going up as well.
It is in your best interest to do everything you can to get loan that offers low monthly payments.
After all, the more money you get to keep, is extra money you can use for other things in life.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.