A car loan payment might be a significant drain on your budget. Whatever strategy you choose to cut costs, you should align it with your financial situation.
We’ve prepared the most important steps to ensure you won’t slip away and find yourself even deeper in debt.
The Reasons to Lower Car Payment
One day you may simply wake up and realize something doesn’t add up. You barely have the money for your daily expenses, and you find it harder to “survive” till the next paycheck.
Then, you realize that a car loan is one of the biggest contributions you make every month. So, why do you need to cut those costs now?
Here’s what people say, when deciding to lower a car payment:
- I could qualify for a lower interest — maybe you financed your car at the dealership, but now you find out the rate is too high, and you could’ve made it much less;
- I bought a car I couldn’t afford from the very beginning — this often happens, when you think you’ll repay the loan on time, but you were in this tough financial spot from the very beginning, and were acting on emotions;
- I desperately need money — may say people facing a temporary financial setback;
- I’ve made my credit history better, so I can now qualify for a lower payment amount
The first thing you should know is that you can adapt a car loan to your scenario. In the next few chapters, we’ll tell you how to do it!
How to Lower Your Current Car Payment?
In more than 20 years (from 2000 to 2022), the average cost of owning and operating an automobile increased to almost $12,000 per 15,000 miles.
It shows that an average mid-sized, current-model, American car costs more every year, and the prices are shifting with the speed of light. So, if you cannot afford the monthly payment for whatever reason, it’s time for action!
Define the reason you need to lower your car payments and talk to your lender. You have to pitch an idea of why your payments should go down, and for how long you’re going to extend the loan.
Here are a few strategies to discuss:
- Negotiate the new loan terms — lenders usually allow deferred payments in case of financial hardship. You can as well request to modify a current loan: either extend it, which leads to paying higher interest or reduce an interest rate.
- Refinance a car loan — there are two ways refinancing your ca r loan helps to lower monthly payments. First, you can get a lower interest rate with the same term remaining on your current loan, or you can refinance at a longer term.
- Sell your car — this might sound harsh, we agree, but if you face a critical situation, it can be challenging to make ends meet. Also, you can trade your car at a dealership, and use the extra cash as a down payment for your next vehicle.
- Find spots to make extra payments — talk to your lender and negotiate the extra payments going directly to the principal. Be aware that some lenders apply extra payments to interest, which is of no help at all, so you have to ensure that your money won’t be wasted.
Online Tool to Refinance Your Car
Refinancing allows you to cover one loan with the other one, which will hopefully lower car payments in the process. It was mentioned above as a way to negotiate lower interest rates or extend the term for your credit.
Even though extending your loan term to lower your payment may seem appealing, be aware it will also increase the amount of interest you pay over the life of the loan.
If it’s difficult for you to find reliable lenders and compare the offers, you can always use the auto refinance calculator, available free of charge online.
You just have to input your current loan details, alongside the original loan term, and an interest rate; the result will show how much money the refinancing procedure will save you every month.
Getting a Better Deal Before a Purchase
In case you found this article before closing a deal on a car, consider yourself the lucky one! It’s always easier to prevent higher payments than to fix mistakes while losing money.
So, here’s the advice (or a few of them) to make you a happy buyer:
- Shop for a used vehicle — buying a used car will help to avoid the loss in value the face of the new car;
- Make a large down payment — the more you pay at the outset, the less you will need to finance;
- Improve your credit score before applying — when you go to the lenders looking for a car loan and meanwhile you have an excellent credit score, they will likely give you better rates;
- Opt for a longer term — but remember, you’ll have to pay more for interest, in this case. While you’ll be able to get your month-to-month costs down, you may pay thousands more than your car is worth with a loan term of over 60 months;
- Lease your car — car leases normally have lower payments because you’re paying to drive the car for a set period and then turn it back in. However, the intent of the lease is not to buy a car, but rather to rent it. You can use a new car (in some cases, a used one), and then you should turn it back to the dealer.
When Is the Best Time?
So, the bottom line is — you should weigh the options before signing a loan or lease agreement.
Don’t decide to buy a car emotionally; just plan your budget, and accept what you can afford right now. If you have an unstable job, or a low income, don’t sign up for the newest car on the market, because you’ll probably struggle when making monthly payments.
Also, be aware that cars should take less than 25% of your budget. If you see that every month is getting harder, and you start delaying payments, talk to your lender.
Be open for discussion; consult about refinancing or renegotiating (which are the best options).
The other solid option is switching to a cheaper (and probably older) vehicle, the one you can afford at a time; this way, you’ll save money for other expenses, and lower your payments.