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Strategies To Lower Your Car Payment

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In a Nutshell

If your monthly car payment is too expensive, there are ways to lower it! Start by talking to your lender to see what options they can offer. You may be able to defer your payment if you’re facing a short-term financial difficulty. Otherwise, refinancing your car loan or selling or trading in your vehicle can help lower your payment. If you’re getting a loan to buy a car, try saving up for a bigger down payment, improving your credit score, and shopping around to compare different loans to make sure you get the lowest car payment possible.

Written by Attorney Eric Hansen.  
Updated November 29, 2021


Whether you’re struggling to make your existing car payment or are looking to buy a car but have some sticker shock when you’re told the monthly payment, you’re in good company. Many Americans, including the gainfully employed and financially prudent, are concerned about the cost of their monthly car payment. This article will discuss how you can lower your monthly car payment, refinance your vehicle, and get rid of your vehicle if you’d like to make your monthly bills even lower. We’ll also suggest some ways to get an affordable payment when you’re in the market to buy a new or used car.

Lowering Your Current Monthly Payment

One of the simplest ways to lower your current monthly payment is to speak with your lender or auto loan servicer. They’re often willing to work with. If you’re having a temporary financial hardship, the lender may defer or lower your next few loan payments. This is especially true if your financial situation is expected to improve soon. The longer you make timely payments on your current loan, the more money your auto loan servicer makes. So it’s in their best interest to keep their relationship with you and other borrowers in good standing.

If you can’t make your payment, your lender can repossess your car. But repossession and other collection activities are expensive and time-consuming for lenders. Most lenders want to avoid that, which is why they’re willing to defer payments or lower a few monthly payments to help you get back on track with your loan payments. Staying in contact with your lender and promptly notifying them of any financial issues you are facing can go a long way.

Refinancing

If you assess your finances and realize your payment troubles aren’t going to be short-term or temporary, you might consider refinancing your auto loan. Refinancing can be a helpful way to make your monthly payments more manageable. If your monthly budget has decreased, refinancing may be a way to decrease your car payments, too. This is especially true if your credit score has increased or interest rates have decreased since you took out the original loan. In this case, refinancing can help you save money over the loan term by getting better terms on the remaining loan balance, such as a lower APR and lower monthly payments. 

You can also lower your monthly payments by extending the length of your new loan when you refinance. But beware: A longer loan term means you’ll make more monthly payments and pay interest in the long term. You’ll have to weigh the pros and cons of lowering your monthly payment versus paying more throughout the loan.

Selling Your Vehicle or Trading It In

A lot of people think about downsizing or rightsizing their vehicle for their family needs. Ask yourself, “Do I really need a flashy new car or a big truck with a matching large monthly payment when a modest, lightly used car will work just the same for my purposes?” If the answer is no, you might want to consider selling your car and buying a lower-priced vehicle.

If you have positive equity in your car — your car is worth more than what you owe on it — you can simply sell it and pay off the loan. You can then use the remainder to buy a less expensive car or put a larger down payment on your next car. With a larger down payment, your monthly payment will be lower. Please remember that this only works if you have positive equity in your vehicle. If you’re upside-down in your current auto loan and your car is worth less than what you owe on the loan, you might want to consider a different route.

Here are some other things to keep in mind when selling your car:

  • You’ll usually be able to get more money if you sell your car to a private party rather than trading it in at a dealership. 

  • Do your research before you sell your vehicle or trade it in. You can look at Kelley Blue Book or Edmunds to see what your car’s fair market value is. 

  • Comparison shop for auto loans with financial institutions like local banks, credit unions, and online lenders. You may want to go through the pre-qualification or pre-approval process with a few different lenders when you are ready to get a new vehicle to see what your loan terms will be.

  • Check with the dealership to see if they offer any special deals, programs, or incentives. They may also have different financing options. See if the dealership can beat an auto loan pre-approval you got from a third-party lender to get an even better deal.

Finally, it’s important to know your credit score and your credit history. Having good credit can make a big difference in the interest rates and loan terms you’ll be offered as a borrower. A higher credit score usually means a lower interest rate and lower monthly payments. A subprime credit rating leads to higher interest rates and higher monthly payments. If you have bad credit, keep working to improve your credit score and take steps to repair your credit

Buying a New Car

There’s a lot you can do before buying a new car to put yourself in the best possible to get a manageable monthly car payment and good loan terms.

Check your credit & increase your score.

Before you buy a new car, you should check your credit reports from the three major credit bureaus: Experian, Equifax, and TransUnion. You’ll want to address any outstanding negative marks on your credit file with the credit bureau or the lender on the respective credit account. Clean up any mistakes or issues before applying for a car loan.

There’s a lot you can do to increase your credit score before you apply for a car loan. Remember that a higher credit score usually means a lower interest rate and lower monthly payments. If you are close to jumping to the next credit score range, you may want to put in a bit more work and wait a little longer for your credit score to rise before shopping for a vehicle and financing options.

Shop around for financing options & get pre-approved.

Shopping around for financing options will help you get the best deal on a  car loan. Just showing up to the dealership and letting the dealer dictate your loan terms isn’t the best idea. You’ll probably end up paying more than if you had shopped around a little bit. When you’re looking for financing options, you’ll want to check with local banks, local credit unions, and online lenders. Compare their loan terms, including the interest rate, APR, loan length, prepayment clauses, and any associated fees or penalties. Look at this information alongside your household budget and choose the loan that will work best for you and your family.

Getting pre-approved can help you get a sense of what your monthly payment will be and whether it’s affordable for you. Being pre-approved for a loan is as good as being a cash buyer. Going to the dealership with this pre-approval increases your negotiating power. The dealer may be willing to beat the other lender’s pre-approval terms and may even offer to sweeten the deal by throwing in some add-ons or upgrades.

Increase your loan term or down payment.

If you are set on having the lowest monthly payment possible, you can choose a longer loan term. However, that longer loan term will increase the overall cost of the loan, as you’ll be paying interest over a longer time. A sizable down payment can reduce your monthly payments as well. The larger your down payment, the less you’ll have to get a loan for. Use an online loan calculator to simulate some scenarios.

Let’s Summarize…

Whether you’re trying to lower your existing car loan payment or save money on a financed new car, you have options. If you already have a car loan and you’re struggling to make payments, start by contacting your lender to discuss your options. If your financial hardship is temporary, they may be willing to defer or lower your monthly payment for a few months. If you’re facing a big, long-term financial hurdle, look into refinancing your auto loan or consider selling your car if you have positive equity in it. Then you can get a more affordable vehicle and lower car payment.

Before you buy a new or used car, it pays to do your research and shop around with different lenders. Make the largest down payment possible and go in after you’ve checked your credit and done what you can to improve your credit score. This way, you’ll get the best possible loan terms and the lowest monthly payment you can be approved for.



Written By:

Attorney Eric Hansen

Eric D. Hansen is an experienced Minnesota attorney within a number of varying and nuanced practice areas. He has operated his own solo practice as well as worked at small suburban boutique firms and large diversified downtown law firms. Eric has a wealth of experience in busines... read more about Attorney Eric Hansen

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