Is It Possible To Lower My Car Payment
Car loans have become standard for most Americans. In fact, car loans now last an average of more than six years, according to the credit-rating company Experian. This means the public will most likely make high car payments every month for a good portion of a decade.
For new car buyers, these monthly payments average $503, which is the first time the national average topped $500 according to a CNBC article. Although interest rates remain low, these payments can be daunting. On top of that, the costs associated with owning a car can make them an expensive asset to maintain.
So are there ways to lower your monthly car payment? And under which circumstances would this be possible?
Here are four overarching ways to lower your monthly car payment: refinance, negotiate, consolidate and sell or trade.
Negotiate For Longer Loan Terms
Shorter terms for car loans usually entail higher monthly payments. The monthly installments consist of the interest rate and the base price of the vehicle. If you do not want to be burdened with hefty monthly payments, choosing a long repayment period is a viable option. This way, the total loan amount can be broken down into smaller amounts which are more affordable to pay.
To increase your chances of success in negotiating for a longer repayment period, it would help to be ready with a sizable down payment. By paying a hefty deposit, the outstanding balance is reduced, thus lowering your monthly car payments. Also, be sure to negotiate for lower car payments as soon as possible instead of waiting for the deadline. This will give the lender ample time to make adjustments on your loan so that you dont miss your next payment.
Car Payments Out Of Control Retake The Wheel
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Maybe you lost your job, bought too much car or got into a loan you just cant afford anymore.
No matter why your car payments have become unaffordable, its important to know what to do. Moving fast can help you avoid missing payments or having your car repossessed. Ideally, youll be able to rework your car costs to better fit your budget.
Heres what you can do to retake control of your car payment.
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Refinance Your Car Loan
A refinance lets you change lenders, reduce your interest rate, extend the length of the loan and finance only the amount you still owe on the car. Your existing lender may be willing to refinance your loan to reduce your interest rate. Your other option is to shop around with other lenders to get the best terms your credit score allows.
How To Reduce Your Car Payments Without Getting A Refinancing Loan
This article was co-authored by Michael R. Lewis. Michael R. Lewis is a retired corporate executive, entrepreneur, and investment advisor in Texas. He has over 40 years of experience in business and finance, including as a Vice President for Blue Cross Blue Shield of Texas. He has a BBA in Industrial Management from the University of Texas at Austin. This article has been viewed 126,352 times.
It is not uncommon for car-buyers to become trapped in what can seem like an unsustainable car payment. The reasons for this are numerous and can include high interest rates, poor credit, a minimal down-payment, or purchasing from a “buy here, pay here” dealer who extends unfavorable or predatory terms. Couple these conditions with financial hardship such as a job-loss, medical situation, or unexpected bills, and default becomes a possibility. This situation often becomes more complex if the buyer has insufficient credit for refinancing, or the conditions aren’t favorable. In this case, the only option available without refinancing is car-loan modification, which often occurs via the use of financial hardship assistance programs with your lender.
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How Do Car Loans Work Bank Of America
Try our refinancing calculator to find out if you can lower your monthly payment by refinancing. Ready to get started? Compare todays auto loan rates from Bank;
Refinancing your auto loan can lower your monthly payment and save you money can give you a better idea without adding an inquiry to your credit report.
The most common benefits of refinancing your auto loan are receiving a lower interest rate or lowering your monthly payment. Its important to understand that;
Refinance your loan. This is where you take your loan and negotiate a new monthly payment and pay-off date. Only do this if it gets you a lower;
Sell Trade Or Try Transit
You might want to ask yourself an unexpected question: Do you really need a car? More narrowly, do you really need that specific car that youre driving?
If you live in a city with good local transit, you can save a lot of money not only on car payments, but gas, insurance and upkeep. Or, perhaps COVID has you working from home rather than commuting daily. If youre in a family with more than one car, maybe you dont need them all.
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How To Negotiate A Car Loan
Buying a car can be a lengthy process, and by the time you’re almost done, working with the dealer’s finance department or a lender may simply feel like a necessary evil. If you’re not careful, though, you could end up paying more for a car loan than you need to.
While there are some limitations, it’s possible to negotiate the terms of a car loan with lenders and dealers. Here are some steps you can take to save hundreds or even thousands of dollars.
The Right Time To Refinance A Car Loan
So, whens truly the best time to refinance your car loan? Its all subjective, but there are a few situations where it is the best time to refinance, and others where its the worst. As weve discussed before, if your credit situation has improved, or your financial status changed and some time has passed, those are the best times to refinance an auto loan.
What about the worst times to refinance? Well, if you just took out a car loan and not even a year has passed, lenders arent likely to approve you for refinancing since theres not much history there. Plus, lenders have requirements for refinancing including the vehicles age and mileage. If your car is over the mileage and/or age limits, a lender can turn you down.
If youre upside down in your auto loan, the lender is most likely going to turn you down for refinancing, as well. Make sure you have equity or are able to cover any negative equity before you consider refinancing.
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What To Do When You Can’t Afford Your Car Payment
Chip Stapleton is a Series 7 and Series 66 license holder, CFA Level 1 exam holder, and currently holds a Life, Accident, and Health License in Indiana. He has 8 years experience in finance, from financial planning and wealth management to corporate finance and FP&A.
Failing to make car payments should never be an option, no matter your financial circumstances. If your situation is dire and you can’t afford to make a payment, first and foremost call your lender. Explain the situation and, if possible, have a budget prepared that includes a dollar figure you can afford for a monthly payment. Lenders would rather work with you to negotiate a payment plan than repossess your vehicle, which costs time and money.
If you take the process one step at a time, you should be able to avoid financial disastereven if your looming car payments look like an insurmountable problem.
Know And Improve Your Credit Score
Before you even step foot into a dealership and shop for a car, find out your credit score. If your credit score is below 650, you may be stuck with a high interest rate of 10% or more. This type of interest rate can leave you with high car payments and increase the overall cost of your car.
Fortunately, you can improve your credit score and increase your chances of landing a lower interest rate. Pay your bills on time, keep your credit accounts open, pay down outstanding credit card balances and avoid taking out other loans to help improve your score.
Once you’ve improved your credit score, you’ll likely be able to secure a much lower interest rate. Believe it or not, dealers often treat their customers with excellent credit scores of 750 or higher to interest rates of 2.9%, 1.9% or even 0%.
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Ways To Lower Your Car Payment
1. Talk to the lender
Best for: Youre having trouble making payments temporarily, and you need to miss a payment or have lower payments for a couple months.
How to do it: Call the lender and talk to a representative about a solution that works for you and them. The lender may be willing to work with you to lower your car payment without refinancing. Keep in mind that even if you defer payments or negotiate a lower monthly payment, the loan balance will most likely stay the same and youll still owe interest on it. Still, its better than racking up late fees or damaging your credit.
2. Refinance
Best for: Youre having a long-term problem paying your auto loan. You could get a longer loan term, a lower interest rate or both, depending on your situation. But beware: The longer the loan, the more interest youll pay in the long run.
How to do it: Apply for a refinance auto loan from multiple lenders. It doesnt hurt your credit to apply to several lenders any more than it hurts to apply to one, as long as you do all applications within a two-week window.
3. Sell the car yourself
Best for: Youre having a long-term problem paying, and refinancing is expensive or not an option.
How to do it: You can almost always get more money for your car by selling it yourself, rather than trading it in to a dealership. Here are a few ways you can boost its sale price:
4. Sell it or trade it in to a dealership
There are two numbers you should look up before you go:
5. Lease a car
Selling It Yourself Vs Trading In
For maximum earning potential, try to sell the car yourself. Kelley Blue Book reports that sellers can get about 15% to 25% more than trade-in value. For example, if a dealer offers $10,000, statistically you’d make $11,500 to $12,500 by selling the car yourself.
The tradeoff is the time and effort. Selling the car yourself means you have to market it through online sites such as Craigslist and follow up on inquiries. Finding buyers willing to pay market price can take time, but if you’ve already skipped a month of payments, it’s worth using this time to get the highest bid possible.
The remaining balance on your loan is also a factor. If you’re upside down , you’ll still need to pay the remainder of your loan. You may need to dip into savings or consider a personal loan. As long as the payments on the loan are affordable, this might be a viable option because it will allow you to cover your missed car payments without causing serious damage to your credit.
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How To Pay Extra On Car Loan Principal
Paying extra toward the principal isnt always as easy as just sending extra money with your car payment.
Talk with your lender to see if they have a specific way of designating when an extra payment should go to the principal, such as marking a check box, including a note with the payment or mailing the extra amount to a different address. Also, check your loan statement to make sure your payment was divided as you expected between the principal and interest.
Since directing extra money to the principal will pay your loan off early, also ask the lender if you’ll incur any prepayment charges.
Know Exactly What You Can Afford
While it’s important to take your time to find the best deals available, it’s crucial that you make sure your new car payment works for your budget.
To determine how much car you can afford, factor in all of the costs that come with buying and owning a car, including:
- Loan payments: This includes both the principal amount of the loan and its interest charges. Your loan amount will include your vehicle’s sales price as well as taxes, fees and add-ons like service contracts. What you’ll pay every month depends on your loan amount, loan term and interest rate.
- Auto insurance: A lot of factors go into deciding your insurance premiums, including the make, model, age and condition of your vehicle. Get a quote from an insurer to find out what to expect. In many states, your credit score is another factor that determines what you’ll pay for insurance.
- Maintenance and repairs: Every car requires maintenance and repairs over time, but the older the vehicle, the likelier it is that you’ll have these expenses on the regular. Buying an older car may save you upfront costs but you’ll have to plan for when things may go wrong.
- Fuel: Depending on how much time you spend behind the wheel and the fuel economy of your vehicle, run some numbers to determine how much you’ll be paying in gas.
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Refinancing Your Auto Loan
In order to refinance your car loan, you need to make sure that some time has passed. You can choose to refinance with your current lender, or look for another one. No matter which lender you choose, they generally like to see that at least two years have passed and that your credit score has improved before they consider refinancing you.
If youre approved for refinancing, you have two options to help lower your monthly payment:
Both options can make your monthly payment more affordable, but you need to make sure you pick the best option for your current situation.
Getting Out Of A Lease
If you leased a car, falling behind on payments creates an entirely different challenge, but the goal remains the same: to get out of debt without damaging your credit. A lease swap might be an option, but depending on how quickly you need to make a deal, you might have to accept that you’ll lose some of the money you paid up front.
Websites like Swapalease.com are similar to other online classifieds, but consisting entirely of people looking to swap leaseswhether to take over a lease or get out from under one. Searchable forums include details like monthly payments, down payments, mileage, and damages, for a fully informed lease swap.
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Research Auto Loans And Interest Rates
When you work with a dealer, their finance department can shop around for your vehicle loan, getting rates from multiple lenders so you don’t have to.
The downside is that dealers aren’t legally required to offer you the best rates you qualify for. In fact, the rate you’re quoted may include compensation for the dealer for arranging the financing between you and the lender.
This means it’s a good idea to shop around and compare interest rates for yourself before you even head to the dealership so you know what’s available based on your credit and income.
Many lenders offer what’s called a direct loan, which means they lend to you directly rather than working through a dealership.
You can also apply for car loans directly on lender websites, and some even prequalify you with just a soft credit check, which won’t hurt your credit score. Even if you do have to submit a loan application, credit scoring models typically combine auto loan hard inquiries if they’re all made around the same timetypically within 14 to 45 days of one another. This means your loan applications will have less of an effect on your credit scores.
This process of applying for and comparing auto loan rates and terms with several lenders can take time, but it’s time well spent if it can help you score a lower interest rate.
As you compare interest rates, make sure to look at the annual percentage rate , which represents the total cost of borrowing, including both interest and fees.
How To Lower Your Car Payment
Youll be able to decrease your automotive cost, however the technique you select will depend on your private monetary state of affairs.
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Perhaps you financed your automotive on the dealership and now understand you would have certified for a mortgage with a decrease price and cost.
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Maybe you obtain a dearer automotive than you would realistically afford.
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Your credit score and funds could have improved since you obtain your automotive.
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Perhaps youre having issue making your automotive cost due to a brief monetary setback.
Your choices could embrace refinancing your present automobile, changing it with a inexpensive one or asking your lender for cost aid.
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