An important part of staying atop your finances, managing them responsibly, and avoiding the debt cycle often associated with short term loans such as title loans is to know how and if you can lower the cost of your existing loan obligations. For instance, how much are you spending on your monthly car payments?
The average is somewhere in the neighborhood of $500. Many seem to hit the $555 mark, and others still are paying even more. Do you feel stuck with a similar amount?
Can I Actually Lower My Auto Loan Payments?
Take a moment to consider how much you are currently devoting to monthly auto loan payments. Regardless of the specific amount, it stands to reason that your vehicle loan payments are making up one of the most significant pieces of your budget. For most of us, the only thing in our budget which demands more money than the car is the house.
Are you looking for ways to trim your budget? Do you want to be able to make your wallet go a little further? Reevaluating your budget should be at the top of the list. Starting at the top, you should look at your auto loan, and then look for ways to bring your current payment down.
Yes, you really can lower your auto loan payments. It comes down to understanding your options, and then implementing one or several of them in a carefully-designed strategy.
Let’s take a closer look at what can be achieved. We have assembled ten of the best and most consistently reliable strategies to lower your payments on your auto loans. Chances are, at least one of these strategies can be implemented on your end.
Refinance for a Lower Interest Rate
Auto lending is as inefficient as it is expensive. Careful planning, combined with an understanding of possibilities such as refinancing your current terms to gain a lower interest rate, can prove to be extremely useful in the arena of lowering your payments. This is perhaps the most well-known option. You may have even considered it, only to abandon it, believing you wouldn’t qualify.
Perhaps, but you’ll never know until you try. Refinancing your loan for better terms and smaller payments has a higher success rate than you might think. The average interest rate can be reduced by a meaningful 2.4%. Your APR, also known as your Annual Percentage Rate, is another way to understand exactly how much the loan is running you. The odds that your APR can be lowered through refinancing are pretty good.
Furthermore, don’t underestimate that 2.4%. It may not sound like a ton of money, but it can total as much as $2, 200, over the course of your loan’s lifespan. The average car loan runs about $32K, which most people are expected to pay within about 5, 5 ½ years. Even at the seemingly-lowly 2.4%, we’re talking about approximately $30 shaved off your loan payments through refinancing. That adds up.
If this appeals to you, the next step will be to research lenders to refinance your auto loan.
Shop Around
At least a couple of the tips we’re going to suggest today will involve the actual process of buying the car. These tips are not going to be particularly helpful to those who are looking for ways to lower auto payments for vehicles they already own. You can still keep them in mind for next time.
When we shop for a car, we tend to focus on what we are looking for in features, style, and so on. You might be surprised to know how few people truly shop around when they’re making an investment as substantial as buying a new car. Many just don’t want to deal with the stress of weighing different loan options and terms.
However, if you’re serious about keeping your monthly payments down, serious research will help you. While looking for your ideal vehicle, compare and review your various loan options. This can include traditional or online lenders, a credit union, or terms established with the dealership itself.
If you’re willing to do your homework, you will be rewarded with the peace of mind of knowing you have the best possible loan terms. Doing a deep dive on car shopping will also likely lead you to the lowest sticker price, as well.
Extend Your Term
In some situations, it is possible to not only lower your monthly payments through refinancing, but you can also extend the length of your loan’s term. This option doesn’t work for everyone, and you will wind up paying more interest by extending the period of paying off the loan, but it does have certain advantages in certain situations.
It can get a little confusing at first glance. Basically, extending your term is going to mean paying more in the way of interest. However, even when you take this into account, extending your loan terms will still mean saving more over the lifespan of the loan. After all, by extending the loan, you are reducing the amount that is expected of you each month. This is why this strategy goes hand-in-hand with reducing your monthly payments. Some pursue or can only qualify for one or the other, but most try to get both.
Believe it or not, but some can extend their auto loan payments to a full eighty-four months. That is a notable jump from loans that are traditionally paid for over that 5-5½ year period that we discussed earlier. In case you don’t know offhand, eighty-four weeks translates to around seven years.
Let’s sum this up with a specific example. Imagine you have the principal balance of your loan is $30K. Let’s then assume you have 40 or so months left on the loan, which stands at a 5% interest rate. If you extend your loan by 10-20 months at the same interest rate, this lowers the payments, and largely cancels out the fact that you’re going to be paying interest over time.
You need to take a long-term view of your various budgetary demands. In some situations, in terms of freeing up money, or redistributing resources to meet your needs, extending the term of your loan can prove to be a fantastic idea on every front.
If you want to explore this option further, you will want to talk to the same lenders you were researching for lower monthly auto loan payments.
Pick a Longer-Term As You Shop
This is another option that works for those who are currently shopping for a new car, as well as those who just want some tips to keep in mind for their next time. Shopping for a longer-term out of the gate can establish a favorable situation for your budget.
There are some distinct advantages to seeking out a longer period of repayment before committing to terms. This includes the ability to create a budget that more accurately reflects your short-term and long-term demands. At the same time, there are some potential downsides to going this route. Chief among them is the possibility of paying more over that relatively long period.
The amount of total interest you will be expected to pay may be higher than a loan with a shorter repayment timespan. There is also the possibility that you will be charged a higher interest rate, as well. This is done by the lender to mitigate the perceived risks of giving you more time the norm many accept.
Finally, there is also the potential for the vehicle to depreciate more quickly than the rate by which you are paying off your loan. This can lead to owing more than what the car is worth.
This can all strike you as pretty problematic. So, why bother? Again, it comes down to the needs of the individual. Your budget may benefit from a longer-term loan, even with these factors taken into account. This is another example of where careful research is going to be required. It is possible to find a long-term auto loan at a reasonable interest rate, but you are going to need to do your homework to find it.
Qualifications for longer-term auto loans can also vary. What you’re going to be offered will depend on the way the lender generally operates under such circumstances. Your credit score can also play a part in how all of this works out.
Think About Trading Down
Be completely honest with yourself: When you bought your car, did you purchase more than you needed? This isn’t about signing on with a poor lender or lackluster loan terms, although those are situations you want to avoid.
What we’re talking about here are the features, size, and other elements of a vehicle that play one role or another in determining how much it costs. Did you opt for expensive leather seats with unique heating elements? Did you buy a bigger car than what you needed? Is there a bunch of bells and whistles that were compelling at the time, but have since proven to be nothing you particularly require? A surprising number of people will answer “yes” to one or all of those questions.
Trading down is not only possible, but it has become pretty popular. Tons of companies and websites will be eager and willing to make very solid offers on your used vehicle. If we’re talking about a fairly new vehicle, and/or with tons of options, the check you get from one of these websites can make it easy to pay off an existing car loan. At the very least, you can pay off almost all of it.
These are also certain factors that influence not only the sticker price but how much you will need to pay on the monthly installment front. With the deck cleared on your previous vehicle and its loan terms, you can go out and pick a vehicle with features that more closely resemble what you are going to need. A more economical vehicle generally means lower monthly payments.
If you decide to go through with this option, you can also keep in mind some of the suggestions we have already covered. This includes seeking out longer-than-the-average loan repayment periods and interest rates. There is a lot of juggling to get to this point, but it is well worth exploring. Virtually everyone can take advantage of this suggestion. Just keep in mind that those with fairly new, feature-heavy cars are going to benefit from this route the most.
Finally, we should mention that you don’t necessarily have to sell your vehicle to a major operation. For some, it is more sensible, perhaps even more lucrative, to try and sell the car on the open market. This can involve a good deal of work, including cleaning out the car, taking good photos, and answering questions from prospective buyers. Nonetheless, if you don’t mind any of that, it is something to keep in mind.
If you do sell the vehicle privately, try this: Research the prices you would get from websites like Cars.com. Know the worth of your car from top to bottom. If someone won’t pay you at least the minimum of what you know you’d get from a professional outfit, move on. This can also give you the safety net of being able to just decide to sell to a business if the time comes.
What About Buying Used?
When it comes to a topic as broad as how to buy a vehicle, few stigmas annoy us more than the notion that used cars are a bad investment. Or a purchase that should only be made when you have no other options available to you. Both mentalities are absurd, when, once again, you put yourself in a position of being willing to do the legwork required to get the best possible deal.
Buying used can be a great way to get the perfect vehicle at an impressively low price. You will want to have a pretty clear sense of what you need in features and size to be happy. As long as you shop around, you should be able to find an affordable option that spectacularly meets your needs.
The benefits don’t end there. Buying used can also mean a lower monthly payment on the loan. This is for the obvious reason that you’re buying used, as opposed to new. However, again, if you do your homework on the shopping front, you can find something at a great price, which in turn will also not ask you to sacrifice anything you need in a vehicle.
We already know that cars drop significantly in value, as soon as you drive them off the lot. This can be annoying for someone who just bought the latest make and model. However, it is very good news for those who take the time to understand how to buy a used car.
Remember, the term “used” when applied to vehicles just refers to that frustratingly-high-depreciation-rate. Even if you were to buy a new car, drive it off the lot, and try to sell it a week later, it would still have to carry that “used” tag. In short, the term “used” is very broad.
It is also a measure that can save as much $100+ on your average monthly payments. On average, as you might imagine, monthly payments for used cars are lower than monthly payments for new cars. Buying used still means being able to potentially buy a like-new vehicle that you can still rely upon for years to come. These days, buying used cars online is easier than ever, combining professional companies with a plethora of private sellers. If you opt for a private seller, make sure you do a lot of research and understand that certain risks will be inherent in going this route.
Try Making a Down Payment
Arguably the best thing about this strategy is the fact that it can work for both new and used car shopping. Having a large sum of money that isn’t a loan is a difficult thing to achieve for many of us. Even so, taking this possibility as seriously and realistically as possible can benefit not only the whole process of buying a car but the options available to you as you craft your larger budget.
How much of a down payment should you bring with you, if this strategy is possible on your end? As much as humanly possible. If you want to start a nest egg for such a purchase now and build on that nest egg for even a year or two, we won’t stop you. The more money you bring with you to the dealership, or whatever the case may be, the less money you are going to have to pay over time. That is just common sense.
So, as you can see, the idea here is to bring as much for that down payment as you possibly can. Even a thousand dollars will shave off your loan conditions to a meaningful degree. Imagine being able to bring $5, 000 for your down payment.
A big down payment also sends a clear, decidedly popular message to lenders. Among other things, it shows them that you are serious about paying off the car. The more money you put forward right from the start, the more prevalent this confidence in you will be. Lenders have to mitigate risks. This mitigation process is ultimately what defines the terms and conditions of the loan that is being extended to you. With a large down payment, you’re making it much easier for them to offer you terms that will be favorable.
For example, if your credit score isn’t great, getting a good loan can prove to be highly difficult. Sure, there are still options available to you. Unfortunately, loan options for poor or bad credit are going to come with caveats, such as higher interest rates and/or short repayment windows.
Offsetting this can be difficult without rehauling your entire financial life. You may need to do that. However, in the meantime, if you need to buy a car, saving up to bring along a big down payment can go a long way towards offsetting the risks your low credit score suggests to lenders. For obvious reasons, we would suggest avoiding a loan for the down payment.
Don’t feel bad, if this option just doesn’t work for you. As you can see at this point, there are options available for virtually everyone.
What To Do If You’re Falling Behind on Payments
While this isn’t technically a suggestion that lowers your monthly car payments, it is still something that we would suggest keeping in mind. This ties into the concept of creating your overall budget, with a specific eye towards how your monthly car payments can influence that. Within this thought, it can be helpful to know what to do, if something unexpected occurs, and your budget suddenly finds itself unable to account from what your lender is expecting.
What can you do in situations such as these? The only thing you really can do is talk to your lender – read more here. This is why it is a good idea to only deal with reputable lending options in your area. A reliable lender, more often than not, is going to be willing to work with you, if anything happens to impair your ability to make your monthly auto loan payments on time.
In many situations, a lender is willing to defer payments. This generally only applies to one or two missed payments. You will also want to keep in mind that your lender is still expecting you to make those missed payments, albeit at a later date. That extends to the interest rate, as well. You should also make sure you explore this option as soon as possible. Ideally, from the moment you realize you may not be able to make a payment. You can also discuss this with the lender beforehand, but doing so may shake their confidence in you.
Your lender may also be willing to renegotiate the terms of your loan, depending upon whether or not it is in their best interests to do so. Some lenders will even go so far as to offer suggestions designed to keep you on track. At the end of the day, they want to get the money you owe them in the most straightforward fashion possible. Up to a certain point, they will be willing to work with you because of that.
Consider the Potential Benefits of Leasing Your Car
Learning how to lease a vehicle is an entirely different option from buying. While you still have to come up with a tidy sum of money, regardless of how long it takes to pay the vehicle off, leasing can create a very appealing situation for buyers.
Is leasing always better than buying? Not necessarily. Still, you want to say you weighed the pros and cons carefully. Start with the fact that your monthly payments are almost certainly going to be lower. This is because you aren’t paying back any sort of principal. Instead, you are borrowing the car for an extended time.
What you repay is the amount involved in the depreciation of the car as you use it. This doesn’t include any finance charges, but it still amounts to a total that is often lower than what you would pay for an outright purchase.
Here are some of the more notable advantages to leasing a car vs buying:
- You get to enjoy the car in its prime: Leasing generally covers the best years of the car’s lifespan. This not only means a relatively hassle-free experience but also that you probably won’t need to have to sink a bunch of money into repairs later on.
- Enjoy the benefits of a late-model vehicle: Leasing generally extends to late-model vehicles. This is a good thing. In doing so, you have a car that will be protected by the warranty of your manufacturer. For many, expenses like oil changes and maintenance are covered by that warranty.
- You get a wider range of vehicles: This is a big benefit that is well worth mentioning again.
- Trade-in value isn’t something you will need to worry about: We like this benefit most of all. When you’re leasing, you don’t have to worry about the trade-in value fluctuating for one reason or another. You also don’t have to deal with selling your car when the time comes. You’re only driving it until the lease is up.
- Are there tax advantages? If you’re buying a car in support of your business, leasing may give you some noteworthy tax breaks.
- It couldn’t be simpler: When the time comes, the leased vehicle is simply dropped off with the dealer. That’s it.
There are also some potential downsides to keep in mind. The biggest downside is that leasing can set you up for a pattern of just doing that every time you get a new car. That might be fine, but don’t forget it will also mean an endless cycle of monthly payments. There are also mile limits imposed on many of the contracts being offered. What this means is that if the car goes over the agreed-upon amount, you’re going to be on the hook for any additional miles. The price tends to vary between ten to fifty cents for each extra mile. Also, you don’t get any credits for the miles you don’t use.
Try to have a clear idea of exactly what you’re going to do and need from your car. Leasing is an option available to virtually everyone.
How To Monetize Your Vehicle
Our last option is perhaps also the last one you should consider. After all, you may not have the luxury of the time involved in using your vehicle to make money. Furthermore, the associated costs of working in one of these fields or another can potentially offset the money you’re making. At the same time, this is an option that deserves to be explored in greater detail.
Here are the three most popular ways to use your car to make extra income. This money can then obviously be earmarked for payments:
- Ride-Sharing: This is the option most people go for these days. Uber and Lyft are just two of the ways people have turned the concept of ride-sharing into a legitimate side hustle. Getting started can be difficult, and you will need to invest a significant amount of time. There is also the inherent risk of getting a passenger who damages the vehicle. Still, as people all over the world have shown, ride-sharing can seriously up your earnings.
- Renting: This option doesn’t always occur to people. Nonetheless, allowing people to rent your car when you aren’t using it has become another viable means of making extra money using your vehicle. HyreCar is a good example of companies that make it remarkably easy to get started in this arena. There are certain risks in renting your car to virtual strangers.
- Deliveries: While some chain delivery/take-out restaurants let you use your car, you’re probably better off just focusing on services like Postmates, DoorDash, UberEATS, and all the rest. Although it is also worth mentioning that driving someone else’s vehicle could be a good way to reduce the wear and tear on yours. Despite being another time and energy demand, delivery work is straightforward and lets you create an income stream for payments.
Conclusion
Among these choices, you will almost certainly find something that helps you make your car payments.