Lowering your Car Payment: Options, Strategies and Considerations

Updated on January 11, 2023

High car payments can put a strain on your finances and make it difficult to meet other financial obligations. Luckily, there are several options available for lowering your car payment and getting back on track. From refinancing your car loan to replacing your current vehicle to leasing a car, there are ways to reduce your monthly car expenses and improve your financial situation.

Summary

There are several strategies for lowering a car payment, and the best option will depend on your financial situation
Reasons for high car payments can include financing at a higher interest rate, purchasing an expensive car, temporary financial difficulties, or improved credit that qualifies you for a lower rate.
Options to lower car payments can include: refinancing, replacing the car with a less expensive one, or asking the lender for payment relief.
Refinancing a car loan can potentially lower the interest rate and the monthly payments but keep in mind that the term of the loan will be extended, therefore the total amount of interest paid over the loan’s lifetime will increase
Selling or trading in the current car for a less expensive one is an option to lower payments but it’s important to research the value of the car and make sure to not roll negative equity into a new loan which can add more debt and interest to the payments
Leasing a car can result in lower monthly payments, as it’s essentially renting the car for a set period before returning it.
It’s important to carefully evaluate factors such as driving habits, longevity requirements, and long-term savings before deciding to lease a car and to take note that rolling negative equity into a lease can add to the cost.
Leasing a car may not be the best option for everyone.

Lowering Your Car Payment: A Comprehensive Guide

There are several strategies you can use to lower your car payment, but which one is best for you will depend on your financial situation. Some possible reasons your car payment may be too high include financing your car at a higher interest rate than you qualify for, purchasing a more expensive car than you can afford, experiencing temporary financial difficulties, or having improved credit that now qualifies you for a lower interest rate.

Your options may include refinancing your current vehicle, replacing it with a less expensive one, or ask your lender for payment relief.

Strategies for Lowering Your Car Payment

Refinancing your Car

Refinancing is an option for lowering your car payment by replacing your current loan with a new one. You may be able to get a lower interest rate, and potentially extend your loan term, which reduces your monthly payments. However, keep in mind that extending your loan term will also increase the total amount of interest you pay over the loan’s lifetime. It’s important to shop around and compare multiple offers from different auto loan refinancing lenders. Many lenders allow you to pre-qualify and see likely interest rates with basic information without affecting your credit score. Additionally, you can use a refinance calculator to compare offers and estimate how much you can potentially lower your car payment.

MORE: Refinancing Your Car Loan: Things to Know and Consider

Replacing Your Current Car

If you’re struggling to keep up with car payments and want to lower them, it may be worth considering selling your current vehicle and purchasing a cheaper one with more affordable payments. This can be a difficult decision to make if you have a strong attachment to your car, but it can be a better choice than falling behind on bills and damaging your credit. To get the most out of selling your car, it’s important to do your research and find out the value of your vehicle through online guides such as Kelley Blue Book or Edmunds. This will give you an idea of how much you can expect to get for your car and help you set a fair price. If you owe more on your loan than the car is worth, rolling the negative equity into a new loan may seem appealing, but this will only add more debt and interest to your payments. A better option is to trade in your car with a dealership and do your research on the car’s trade-in value so you know if the dealer’s offer is fair.

Leasing a Car

An alternative to paying for a car outright is to lease a new one, which can result in lower monthly payments. With a car lease, you are essentially renting the vehicle for a set period before returning it to the dealer. This differs from buying a car, as the ultimate goal of a lease is not to own the car, but rather to use it for the duration of the lease agreement. Leasing a car can be a more accessible option if you’re interested in a new vehicle, as most leases are for new cars, however, it is possible to find dealerships that offer leases for used cars. Another option is to trade in your current vehicle for a leased one, but this might involve rolling the negative equity into the lease which can add to the cost. Negative equity occurs when the amount you owe on a car loan is more than the value of the car, this can be resolved by returning the car at the end of the lease. It’s important to take note that leasing is not the best option for everyone. It’s best to carefully evaluate your financial situation and consider factors such as driving habits, longevity requirements, and long-term savings before making a decision.

Asking for Payment Relief from Your Lender

If you’re facing difficulty in making a car loan payment, it’s important to reach out to your lender as soon as possible. Many lenders are willing to work with borrowers who are facing temporary financial difficulties. They may offer solutions like forbearance, which allows for a period of reduced or skipped payments, or loan modification, which can extend the loan term and reduce payments. However, it’s important to keep in mind that these options do not reduce the overall amount of the loan and may end up costing more in interest over time. But, it is better than not making payments and risking damaging your credit score with a repossession.

Factors to Consider before Making a Decision

When financing a car, it’s crucial to consider your budget and ensure that you’re able to afford the payments before signing a loan or lease agreement. While there are options to lower your payments after the fact, such as loan modification or forbearance, it’s much easier to plan and lock in an affordable payment before the fact.

It is important to remember that car payments are not just short-term commitments. If payment is tight today, when the car is new, it may become even more difficult to afford as the car gets older and the loan term progresses. Therefore, using a car affordability calculator is an effective tool to help you figure out the maximum car payment and loan amount that your budget can handle. This can help you avoid the risk of falling behind on payments and damaging your credit score. By taking the time to understand your budget and carefully consider what you can afford, you’ll be in a better position to find a loan or lease that works for you, instead of struggling to make payments in the future.

Conclusion

In conclusion, there are several options available for lowering a car payment, but the best one for you will depend on your financial situation. Some possible reasons for high car payments include financing at a higher interest rate, purchasing an expensive car, temporary financial difficulties, or improved credit that now qualifies you for a lower rate. Options such as refinancing, replacing the car with a less expensive one, or asking the lender for payment relief can help lower your car payment. It’s important to shop around and compare offers, research the value of your vehicle, and carefully evaluate your financial situation and other factors such as driving habits, longevity requirements, and long-term savings before making a decision. It’s also important to be aware of the potential negative effects of rolling the negative equity into a new loan or lease, which can add more debt and interest to the payments.

Questions Answered in this Article

What are some options for lowering my car payment? Your options may include refinancing your current vehicle, replacing it with a less expensive one, or ask your lender for payment relief.
How does refinancing my car loan lower my payment? By refinancing your car loan, you may be able to get a lower interest rate and potentially extend your loan term, which reduces your monthly payments. However, keep in mind that extending your loan term will also increase the total amount of interest you pay over the loan’s lifetime.
What should I consider when selling or trading in my current car? If you’re considering selling or trading in your current car, it’s important to do your research and find out the value of your vehicle through online guides such as Kelley Blue Book or Edmunds. This will give you an idea of how much you can expect to get for your car and help you set a fair price. Additionally, it’s important to note that rolling negative equity into a new loan can add more debt and interest to your payments.
How does leasing a car lower my monthly payments? Leasing a car allows you to essentially rent the vehicle for a set period of time before returning it to the dealer. Because you’re not paying to own the car, the payments tend to be lower than with a traditional car loan.
What factors should I consider before deciding to lease a car? It’s important to carefully evaluate your financial situation and consider factors such as driving habits, longevity requirements, and long-term savings before deciding to lease a car. Additionally, it’s important to note that rolling negative equity into a lease can add to the cost, and leasing may not be the best option for everyone.