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How To Lower Your Car Payment

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated February 27, 2024​

7 min. read​

how to lower car payment

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 going up.

The upside is that there are ways to lower your car payment to make it more affordable. You also get to build equity in your car instead of making endless lease payments. 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 reduce your monthly car payments.

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Primary Factors that Can Increase Your Monthly Car Payments

Knowing what leads to a high car payment can help you reduce your auto loan payments. These factors also apply to other secured loans like mortgages, and most of them apply to unsecured loans like personal loans. Here’s what you should monitor.

Cost of the Car

A more expensive car guarantees higher monthly loan payments. If something costs more money, you will have to pay more money to obtain it. Looking for a more affordable car can help you secure a lower monthly payment.

Down Payment

Many lenders let you buy a car without putting any money down. While this option makes car ownership more accessible, you also end up with higher monthly payments.

A down payment also represents all of the interest-free money that goes into your car purchase. Not making a down payment will increase the amount of interest you pay over the life of the loan.

Loan Interest Rates

Interest rates elevate your monthly payments. A higher interest rate will make the loan more expensive. When deciding which rate to provide, lenders consider several factors, such as your income and financial obligations.

Loan Term Length

A shorter loan term will get you out of debt sooner but will also result in a higher monthly payment. Many people use loans to spread out a large lump sum payment into smaller and more manageable monthly payments.

Shorter loans give you less space to spread out the principal. You can reduce your monthly payments by stretching out your loan, but you will stay in debt longer.

Your Credit Score

Almost every lender will look at your credit score before giving you an auto loan. Lenders who do not look at your score or do not consider it as part of the application process will charge some of the highest rates in the industry.

Your credit score gives the lender a snapshot of your ability to make on-time payments. Improving your credit score can help you secure a lower interest rate and better terms for your loan. However, people with low credit will get stuck with more expensive loans.

People with lower credit scores may want to build them up over a few months before getting a loan if they have the flexibility to wait. You can also refinance your auto loan in the future once your credit score is higher so you can get a lower rate.

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How To Lower Your Current Car Payment

Lower monthly car payments will free up your budget for other expenses. Luckily, there is some good news. Consumers have many ways to reduce their average monthly payments. These are some of the available choices that can lower your car payments.

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. A lower APR will reduce the amount of interest you pay on your current auto loan.

Refinance Your Car For Longer Term

A longer loan term will guarantee a lower 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.

It’s also possible to fall into a bad cycle of continuously refinancing your debt. This cycle results in more fees and offers less incentive to pursue a side hustle or career advancement if you can always lower monthly payments by kicking the debt further down the road.

Your financial situation may warrant extending the life of your loan and can alleviate stress in the short run. After extending the loan, you should look for opportunities to grow your income with a career advancement or a side hustle. Refinancing can help you stay afloat, but building a stronger financial foundation will assist with future challenges.

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.

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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.

Shopping around for used cars can make this strategy more effective. A used car is much cheaper than its new counterparts, and many new models have features similar to those of used vehicles. Looking for more affordable brands that still have quality as they age can also help in your search for a more affordable car.

How To Lower Your Future New Car Payment

If you have not yet purchased a car, you have an opportunity to secure lower car payments now instead of needing a refinance later. These are some of the steps you can take to end up with lower monthly auto loan payments:

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 assessing your credit health is worthwhile 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 past credit missteps, consider waiting until you take the necessary actions to improve your credit health. Paying off debt and making on-time payments moving forward are the two best ways to improve your credit score. Otherwise, you could spend several thousand more over the life of the loan.

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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.

A larger down payment will also reduce your loan’s balance. A lower balance means you have less money that needs to be spread across the monthly payments. If you have to pay off $30,000 in 60 months, it comes to $500/mo. However, making a high enough down payment to reduce your balance to $20,000 only results in a monthly payment of $333 ft during those same 60 months. These calculations exclude interest.

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. That extra $16/mo adds up, and if you put that money into your auto loan, you will get out of debt sooner.

Knowing how interest works on your car loan can help you save money in the long run. These concepts also apply to other loans like mortgages and personal loans.

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. It’s possible to reduce your monthly expenses considerably by using longer terms. However, you will end up in debt for a longer amount of time. It’s important to assess the pros and cons of extending a loan and review your personal finances before making a decision.

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Get Started with Lowering Your Car Payments

Are you thinking about refinancing your car loan but have no idea where to start? Refinancing your auto loan with RefiJet could be the solution you’re looking for. By exploring different loan options and potentially securing a lower interest rate, you may be able to reduce your monthly payment and save money in the long run. To lower your car payment with RefiJet:

  1. Fill out the online form: Start by visiting RefiJet’s website and filling out a simple online form to get started.
  2. Connect with an expert: An auto refinancing expert will reach out to discuss your options and help you find the best solution for your financial situation.
  3. Review loan offers: Explore different loan offers from RefiJet’s partner lenders to see if you can secure a better rate than what you currently have.
  4. Choose what works best for you: Once you’ve reviewed your options and found a loan that suits you the most, RefiJet will handle the rest. Their team will contact the lender on your behalf and assist with completing any necessary paperwork. This streamlined process takes the stress out of refinancing, allowing you to focus on enjoying your lower monthly payment.

With RefiJet’s expertise and personalized service, you can trust that you’re in good hands when it comes to lowering your car payment. Don’t wait any longer – visit RefiJet’s website today to get started on refinancing your auto loan and saving money.

FAQs About How to Lower Your Car Payments

Can you lower your car payment by paying more each month?

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.

Can you lower your car payment without refinancing?

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.

Will car refinancing hurt your credit?

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. However, it is important to understand how refinancing a car affects your credit score.

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