Want to lower your monthly car payment as soon as possible? Read on to find out how to make it happen.
You’ll want to check whether:
your payment is higher than it should be
your current lender is willing to negotiate
it might make sense to sell your vehicle and buy a less expensive one
refinancing your vehicle makes sense for you
lowering your car payment is the right solution for you
Read on for your complete guide to lowering your monthly vehicle payment – whether it’s possible, whether it’s a good idea, and how to make it happen.
If you have financed your vehicle, you may feel overwhelmed by your monthly payments. When you add on gas, insurance, and maintenance, your car can quickly eat up your monthly income. But there are a few ways to get a lower car payment and loosen up your monthly budget.
In this guide, we’ll cover:
What is considered a high car payment – and what makes a car payment too high
The best ways to lower your monthly car payment
Things to consider to decide whether you can (or should) lower your car payment
There are two types of too-high car payments:
Monthly payments that are too high for your budget
Monthly payments that are above market rates
You might be wondering if your car payment is higher than it should be. There is no hard and fast number that constitutes a “high” car payment, and it will depend a lot on what your finances and your budget look like, but here are the primary things to consider.
In general, it is recommended that you should spend no more than 10-15% of your monthly income on your car payment. Your total transportation expenses (gas, insurance, maintenance) should not exceed 20% of your monthly income. So if your car payment is over 15-20% of your monthly income, you are probably out of your budget with car payments.
But that rule is not cut and dry. Look at your own personal budget to make the call. Consider all of your income and all of your expenses: the variable expenses (such as groceries and entertainment) and the fixed expenses (such as rent and insurance). If you are spending more than you are bringing home every month, it is safe to say that you need to shore up your budget, and reducing your monthly car payments will be a step in the right direction.
There’s a possibility that your current loan terms don’t reflect the lowest Annual Percentage Rate, or APR, available to you.
This can happen because:
You got your loan when interest rates were higher
You got your loan from a dealer that marked up the rate so you didn’t get the lowest rate available to you
Your financial picture has changed and you’re now eligible for lower rates than you were when you initially got the loan
Use Auto Approve’s savings calculator (scroll down to find it!) or get a personalized, no-commitment quote in just a few minutes to find out if you’re paying more than you need to be.
Most people can save money on their monthly payment by refinancing to a loan with better terms. However, if your credit is very bad or your finances have other red flags, you may not be eligible for the best market rates.
Try renegotiating
Sell or trade in your vehicle
Refinance your loan
It never hurts to talk to your current lender about your money situation (and don’t be embarrassed, it happens more often than you might think).
There might be a few things that they can do to alleviate your situation. Sometimes they will let you defer payments for a few months, but you will still accrue interest during this time so it will end up costing you more overall.
Lenders may let you renegotiate certain terms of your loan, but in this case it’s better to apply for refinancing with a few different lenders, as they may be able to beat your current lender.
If you anticipate having a long term issue with car payments, it might be a good idea to sell your car privately or trade it in at a dealership.
If you choose to sell your car, make sure you clean your car thoroughly ahead of time and take good pictures that will highlight your car’s best features. Do some research on Kelley Blue Book or Edmunds to find what a fair resale value will be. Call your lender to find out exactly how much you have left on your loan so you know how much you owe (and how much you should try to get when selling your car).
Alternatively you can choose to trade your car in. This is a good option if you still need a new car but cannot afford your current loan. It is important to know beforehand how much is left on your current loan and what the resale value of your car is.
Refinancing your car loan is the best way to lower your monthly car payment.
It is much easier than selling your car and much more effective than trying to negotiate with your current lender.
When you refinance your loan, you want to apply with 3-5 lenders to get the most competitive rates. It is best to use a company that specializes in vehicle loan refinance, as they will have relationships with many lenders and can help you pick the best loan for your situation.
Refinancing will be most effective if you are prepared.
Take the following steps to make sure you get the best car loan refinance offers:
Make sure your credit score is in good shape. The higher your credit score is, the better car loan APR you will be offered. Make sure you are paying your bills on time and in full (scheduling autopay is a great way to do this), pay down your debts that have the highest credit utilization ratio, and check your credit report.
Know your current loan terms. You should know your current monthly payment, the amount of time you have left to repay, the car loan APR, and if there are any prepayment penalties for which you may be responsible. Call your lender if you have questions–you don’t want to refinance if the fees will outweigh your savings.
Collect any documents you may need. You will most likely need a photo ID, your vehicle’s information (bill of sale, VIN number, make, model, and year), your proof of income and financial history (pay stubs, banking information, and your credit report), proof of residence, and proof of insurance.
Research lenders. You won't be able to compare loan terms until you actually apply, but you can look around online for different credit unions, traditional banks, and online lenders. See what some of the average rate offers are, and see what their customers have to say. Customer satisfaction ratings are very important, so don’t ignore this step. Using a company that specializes in auto loan refinance can make this step much easier.
Apply and compare. Once you have completed your research you can start applying. Be sure to apply in a fourteen day window so that all of your applications will count as one hard inquiry on your credit account. When the offers come in, look at the interest rate, the repayment period, the prepayment penalties, the fees, and the customer reviews to decide what loan is right for you.
Sign and save. Once you pick a loan that is right for you, all you have to do is sign and start saving. And if you use Auto Approve to refinance your loan, they can help you fill out all of the paperwork (even the DMV paperwork!)
Refinancing is the easiest and most effective way to reduce your monthly car payments. It allows you to shop around and compare offers so that you know you are getting the best terms possible. And when you have a company that specializes in car loan refinance, it is quick and easy.
Here is a checklist to help you decide.
Will your current lender negotiate?
Does your vehicle make sense for your budget overall?
Will lowering your vehicle payment fix your budget?
Are you eligible for a lower car loan rate through refinancing?
Do you like and want to stay with your current lender? Have you contacted them to see if they can offer you a break?
If your budget is too tight and you’re still driving an expensive vehicle, there is no shame in downgrading to a more practical, affordable vehicle. While renegotiating your loan or refinancing to a new loan with more favorable conditions can certainly save you money, if your budget needs more wiggle room than tweaking your APR can offer, you may need to make a bigger change.
Find out how much you might be able to save to give yourself a better idea of whether it’s enough.
This is a similar question to the last one, but if your car is already sensible for your budget or if keeping your current vehicle is non-negotiable, you may need to look at additional ways to save money. You should still try to secure a lower monthly vehicle payment, but it may need to be part of a larger plan to right your financial ship.
Here are some resources to help you get started:
The simplest way to lower your car payment quickly is to refinance your vehicle loan. Get started with Auto Approve today.
Refinancing your car loan is your best bet when it comes to securing a lower monthly car payment. It allows you to shop around and compare terms so that you can be sure you are getting a better loan while allowing you to keep your car.
If you think refinancing your vehicle is a good move for you, be sure to prepare ahead of time to ensure you get the best loan offers possible.
Auto Approve is here to help with your car loan refinance. Our experts can guide you through the process to make your refinance a breeze. So don’t wait, get your free, no-commitment quote from Auto Approve today to see how much money you could be saving!