Is your car loan payment stretching your budget too thin? You’re not alone. With the recent surge in demand for automobiles, the average auto loan payment in the U.S. is a whopping $563 for new cars and $397 for used vehicles.
The upside is that there are ways to lower your car payment to make it more affordable. Read on to learn how to lower your car payments, including refinancing to determine if you should refinance your car loan or use another method to lower your monthly car payments.
Refinance Your Auto Loan
How To Lower Your Current Car Payment
See here some options on how to lower your car payments, including the option of vehicle refinancing.
Refinance Your Car For Lower APR
If your credit has improved since you initially took out your auto loan, you could qualify for a lower APR. This could also be the case if you had good or excellent credit when you applied, but the average interest rates have gone down since that point.
Refinance Your Car For Longer Term
An extended loan term is another way to lower your car payment, even if you can’t qualify for a more competitive interest rate. Some lenders offer repayment periods of up to 84 months, which could reduce your payment by a sizable amount. But there’s a slight drawback: you’ll pay the lender more in interest over the life of the loan as they’ll have more time to collect from you.
Apply For A Loan Modification
If you’ve fallen behind on your car loan payments, your lender may offer a modification to help you avoid repossession and get back on track. You’ll have to prove that you’re experiencing financial hardship and are a good fit for the modification, which could entail a lower interest rate, monthly payment or fee reversals.
Trade-In Or Sell Your Car and Buy A Less Expensive Car
Depending on how much you owe on your current ride and its resale value, it could be sensible to swap it for a new one. Assuming you’re not upside down in the loan, you can trade it at the dealership or sell it to a private party and purchase a more affordable vehicle that works for your budget.
But if you owe far more than the car’s worth, the dealership may be willing to roll the difference into a new loan. Still, the payment could be lower if the price of the new car is substantially lower than you paid for the vehicle you’re trading in.
Refinance Your Auto Loan
How To Lower Your Future New Car Payment
If you have not yet purchased a car, see here some tips to reduce the payments you will make on your car loan:
Clean Up Your Credit
Your credit score plays a significant role in the interest rate you receive from the lender. The most favorable loan terms are generally reserved for borrowers with higher credit scores, so it’s worthwhile to assess your credit health before you apply for a loan.
Review your credit report and dispute any errors or outdated information to ensure negative entries aren’t dragging your credit score down.
If you’ve had a series of credit missteps in the past, consider waiting it out until you take the necessary actions to improve your credit health. Otherwise, you could spend several thousand more over the life of the loan.
Make a Larger Down Payment
Some lenders offer lower interest rates to borrowers who make larger down payments. Putting more on the table minimizes the level of financial risk the lender has to assume. In turn, they pass the cost savings on to you in the form of a lower interest rate.
Shop Lower APR
You’ll likely qualify for an interest rate on the lower end if you have good or excellent credit. In turn, your car payment will be more affordable. For example, if you get a 60-month loan for $25,000 at a rate of 4 percent, you’ll pay $460 per month. But if the rate drops to 2.5 percent, the payment will only be $444. So make sure you understand how interest works on your car loan.
Get Longer-Term Loan
As mentioned earlier, you could qualify for a loan term of up to 84 months with select lenders. While you’ll pay more in interest over the life of the loan, your monthly payment will be far more affordable than what you’ll get with a loan that has a shorter term.
Using the examples above, but with an 84-month loan term, your monthly payments would be $342 and $325.
FAQs About How to Lower Your Car Payments
No, you cannot lower your car payment each month as it is established when you take out an auto loan. However, you can pay your car off sooner or possibly refinance to reduce your monthly loan payment.
Yes. You can apply for a loan modification if your lender offers it or swap out your current ride for one that’s more affordable.
When you apply for a new loan, your credit score will take a slight dip from the hard inquiry that is generated. But the impact is only temporary. The average age of your credit accounts could also go down and drop your score. Again, the effect typically won’t last more than six to 12 months, and your credit score will rebound over time with timely payments and sound debt-management habits. But it is important to understand how refinancing a car affects your credit score.
Get Started with Lowering Your Car Payments
Are you thinking about refinancing your car loan but have no idea where to start? Consider using an online platform like Auto Approve to get matched with lenders in minutes. There’s no impact on your credit score when you request a free quote, and you can view loan options from a range of banks and credit unions to determine if vehicle refinancing is right for you.
Get a quote today by completing the simple online form on their website.