A high car payment can be a strain on your budget. Fortunately, there are simple steps you can take to reduce it. And if you haven’t gotten a loan yet, you can start with a low monthly payment by shopping around and finding the right lender.
four ways to lower your current car payment
Your car payment is not set in stone. it can change: you just need to talk to your lender or take additional steps to make it more manageable.
Reading: How to reduce car payment
1. renegotiate the terms of your loan
Lenders often allow you to defer a payment when you’re facing financial hardship. this can take the pressure off for a month or two, but can lead to paying more overall. This is because interest continues to accrue during the deferment.
You can also apply for a loan modification. 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 can be difficult to qualify for if you don’t have good credit.
2. refinance your car loan
There are two ways refinancing your car loan can help you lower 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 lower your monthly payments, but you’ll pay more in interest overall.
3. sell or exchange your car
If your car is over your budget, you can always sell it and upgrade to a cheaper vehicle. the most convenient way will be to exchange your car at a dealer. You’ll be able to use that extra money as a down payment on your next car, and you won’t need to handle a private sale.
private sales can make you more money. just know that selling a car with a lien can be tricky. Talk to your lender to make sure you’re not violating the terms of your contract.
4. make additional payments when possible
Moving forward on your auto loan will help you lower future monthly payments, or avoid them altogether. While many lenders apply additional payments to interest only, you may be able to request that yours go directly to principal.
This will help reduce the total amount you owe. it will also give you some much-needed wiggle room in the future.
how to get a lower car payment before you buy it
shop smart to get a low payment on your next vehicle. You don’t have to take the first loan you’re offered, and keeping the amount you finance low is a great way to keep your monthly cost down, too.
- buying a used car. Not only is it significantly less expensive up front, but buying a used car will also help you avoid the big drop in value that new cars face.
- Make a large down payment if you can. The more you pay up front, the less you’ll need to finance, which means lower monthly payments.
- Trade in your current vehicle or sell it privately. Using your current trip as a boost for your down payment is a great way to keep your next monthly payment low.
- Improve your credit score before you apply for a loan. Lenders and dealers will give you better rates when you have good or excellent credit. If you can, wait to buy a car until your score has gone up a few points.
- look 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 interest payments. While you’ll be able to lower your costs from month to month, you can pay thousands more than your car is worth with a loan term of more than 60 months.
- pay sales tax in advance. lenders will let you finance the sales tax on your vehicle, but try not to. you’ll also end up paying interest, and it will only make your monthly payment larger.
- Leasing instead of buying. Leasing gets a bad rap, but you can save money on your monthly payments with a lease. however, it can be expensive if you don’t have a good credit score, and you won’t be able to sell your car at the end of the lease period.
the end result
Because cars need to take up less than 25 percent of your overall budget, it’s crucial to keep your monthly payment low. If you took out a loan at a high interest rate, refinancing or renegotiating are two of the best solutions. But switching to a more modest vehicle is also a solid option that can put more money in your pocket each month.
Whether you’re looking for a new or used car, carefully consider the total cost and increase your down payment before you buy. you’ll pay less interest and start with a low monthly payment.