How to lower your car payment

With average monthly payments on a new-car loan recently surpassing $640, you may be looking for ways to lower your car payment.

In the fourth quarter of 2021, new-car payments averaged $644 per month and used-car payments weren’t far behind at an average of $488 per month, according to the Experian State of the Automotive Finance Market report.

If you’re struggling to make payments on your current auto loan — or if you’re shopping for a car loan and want a lower payment than what you’re being offered — there are several possible ways you might be able to lower your car payment.

Lower your car payment before you buy

Choosing a less-expensive car is one way you could save money each month — but there are a few other ways you may be able to get a lower monthly payment on your next car purchase.

Shop around

It could pay to comparison shop. Reviewing offers from different lenders, like banks, credit unions, online lenders or dealerships, allows you to compare key loan factors that could affect your total monthly car payment. These include the loan amount, annual percentage rate and the length of the loan.

If the offers you’re getting still don’t fit into your budget, consider taking some time to improve your credit health. This could help you get lower interest rates and, in turn, lower your monthly payments.

Choose a longer loan term

Opting for a longer loan term of 72 months or 84 months could help you reduce your monthly payments — but you’ll end up paying more total interest. And when you stretch out your loan term, you may be charged higher rates, too.

Choosing a longer loan term also puts you at risk of becoming upside down on your loan. Your car could depreciate more quickly than you pay off your loan, and you’d end up owing more than the car is worth.

Make a down payment

Saving up cash for a car down payment is a great way to lower your monthly auto loan payments. The more you put down upfront when you buy a car, the less you need to borrow.

For example, if you put $5,000 down on a $20,000 car, you would only need to finance and pay interest on $15,000. If you got an interest rate of 4% and loan term of 60 months, your estimated monthly payment would be $277.

In comparison, if you made no down payment and financed $20,000 with the same interest rate and loan term, your estimated monthly payment would jump to $369 — that’s $92 more each month.

Lower your current car payment

If you already have a car loan, but you’re having trouble making your monthly auto loan payments or need some extra cash in your pocket each month, consider these options.

Talk to your lender

If you’re behind on your current auto loan or at risk of missing a payment, discuss your financial situation with your lender or loan servicer as soon as possible.

Your lender may be able to work out a payment plan or offer you other options to help you get back on track. The Consumer Financial Protection Bureau suggests asking how any options your lender offers could affect your credit reports.

Refinance your auto loan

Refinancing your existing loan might reduce your monthly payments. If interest rates have dropped since you got your original loan, your credit has improved, or you just aren’t confident you got the best possible rate to begin with, you may be able to get a new loan with a lower rate and better terms. Keep in mind that refinancing involves opening up a new loan with new terms — that means the potential for brand-new loan fees on top of interest you’d pay. And if you end up extending your loan term and are able to lower your monthly payments, you’ll be paying interest for longer.

Trade in your car for a lower-priced vehicle

If you have positive equity in your vehicle, meaning your loan balance is less than the car is worth, you may be able to lower your monthly payment by trading it in for a less-expensive car.

Say you owe $5,000 on your auto loan and your vehicle is currently worth $8,000. You’d have $3,000 of equity that you could use as a down payment toward another car. A down payment reduces how much you need to borrow, and if you choose a more budget-friendly vehicle, you may be able to lower your monthly payments even more.

What’s next?

Whether looking for a new-car loan or ready to refinance, take the time to apply for prequalification and compare offers from multiple lenders to find a loan that fits your budget.