Breathe Easier: How to Lower Your Car Payment to Relieve Stress

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Key takeaways

If you can’t afford your monthly car payment, contact your lender immediately.
Lowering payments is possible, though it may offer only temporary relief.
Your options also include surrendering, selling or trading in your car.

If a high car payment adds stress to your life, you’re likely not alone. The average monthly loan payment was $745 for a new car and $521 for a used car in the first quarter of 2025, according to a report by credit bureau Experian. What’s more, just over 17% of loan payments for new cars were more than $1,000 per month.

If you feel like you’re drowning in auto loan debt, read on for six ways to reduce your monthly payment.

Refinance your car loan

Best for borrowers with improved financial situations

Refinancing is a strong option when you’ve seen an increase in your credit score or salary since you bought the car. With a better credit score, you may be able to qualify for a lower APR, saving you money on interest and potentially lowering your monthly payment.

You may also qualify for a longer loan term, which also helps reduce your payment. However, a longer term will likely mean paying more interest over the life of the loan.

Qualifying for an auto refinance is similar to the process to qualify for an initial auto loan. You’ll need to provide your personal information (including salary and debts), vehicle information and the details of your current loan.

Check with your current lender to see if there are any prepayment penalties that you could incur by refinancing.

Note that some auto lenders won’t refinance their own loans, so you may have to shop around for another lender. Compare offers from multiple refinance lenders to find the best rates and terms.

Auto refinance calculator: Find your estimated monthly payments

Negotiate with your lender

Best for those who need a little breathing room

Contact your lender to explore the available options to reduce your payment. Generally, lenders would rather find a solution that works for you than repossess the vehicle.

If your long-term financial situation has changed and you’re unable to make your monthly payment for the foreseeable future, ask your lender if you would qualify for its hardship auto loan assistance program.

The lender may be able to offer options such as:

Changing the payment due date
Deferring a payment
Extending the loan term

As an example, under a hardship program, you wouldn’t have to pay fees for skipping a payment, though interest would still accrue. Some lenders may accept lower payments for a few months, which could also extend the loan term.

And if you’ve experienced a natural disaster, like an earthquake, hurricane, or tornado, lenders may have special hardship programs to help those dealing with the aftermath.

If you’re truly unable to continue paying, the lender can make arrangements for you to give up the vehicle voluntarily.

Make extra car payments

Best for people with sufficient cash flow

Paying off the loan early, if you can afford to, will eliminate stressful car payments indefinitely. Read the loan agreement or check with the lender to see how extra payments are applied. You may be able to select whether they’re applied to the principal or credited against the next payment.

Be sure to check if there is a prepayment penalty in the loan agreement — if there is, that could eat into the amount you’d save.

Further, you should also make sure your auto loan is based on simple interest, rather than precomputed interest. If you have a precomputed interest auto loan, you’ll have paid more of the total interest charges at the beginning of the loan term. You may or may not receive a refund on the interest you’re due by paying off the loan early.

Here are three ways you can make extra car payments:

Pay twice a month. Split the payment in two and pay every two weeks. This move helps lower the amount of interest you pay. Check that the lender will allow doing so without charging a prepayment penalty.
Pay extra principal. If your lender applies extra payments to the principal instead of paying ahead on interest, send a separate lump sum payment or add it to the monthly installment.
Round up. If extra payments are applied to the principal, round up to the next larger number — for example, if your payment is $550, send in $600.

Sell or trade in your car

Best for those who are willing to drive a cheaper vehicle

Another long-term option for reducing your car payment is to sell or trade in the car for a lower-cost vehicle that better fits your budget. By trading in your current car, you can use the positive equity as a cashless down payment on a more affordable car.

When you’re considering trading in versus refinancing, the best option will depend on your credit score and whether you’re able to save up for a down payment.

Trading in your car to a dealership may be more straightforward, but you could make more money if you sell it to a private party. You can use the money you receive to pay off the current loan and use any remaining money as a down payment or to buy a car entirely with cash.

Selling a car with a loan can be complex, so talk with your lender to understand what you have to do to make the transaction go smoothly.

Lease instead of own

Best for people who like a new car every few years

You may be able to get lower payments by leasing a car instead of financing it. In the first quarter of 2025, the average new lease payment was $595, compared with $745 for the average new car loan payment, according to Experian.

Lease payments are lower because you’re paying for the use of the car, without owning it outright. At the end of the lease, you can walk away from the car or buy it by financing the residual value.

Leases have mileage restrictions and fees for excessive wear and tear. And if you want to end the lease early, you may be responsible for early termination fees.

Just like financing a car, you can negotiate the terms of the lease, including the cost, estimated value at the end of the lease, mileage limits, trade-in value and the financing charge.

Make a larger down payment

Best for those who have access to upfront funding

One of the most effective ways to reduce your car payment is to make a substantial down payment. You’ll be financing a lower amount, which means you will pay less interest.

A common recommendation is to put 10% down on a used car and 20% down on a new car. Following this rule could help you qualify for lower interest rates and reduce the likelihood of ending up with an upside-down car loan.

For example, if you buy a $25,000 vehicle and make a down payment of $5,000, you’ll only finance $20,000. Assuming a four-year loan term and a 7% interest rate, your loan payment will be nearly $120 less each month than if you’d made no down payment.
A larger down payment can also make a difference if you’re shopping for a bad credit car loan and need to boost the odds of getting approved or qualifying for a lower interest rate.

Frequently asked questions

Making a large down payment when you first buy a car can lower your monthly payment. And if you’re in a tough financial situation, work with your lender to find a solution that will help you while you pay off the loan, such as deferring a payment or extending the loan term.

You could also sell or trade in the car for a less expensive vehicle.

The average monthly payment for a used car is $521, while the average monthly payment for a new car is $745. That means $500 a month is aligned with the average for a used car, and much less than the average for a new car.

Use a car affordability calculator to see how the car you want fits into your budget.

The 20/4/10 rule is a guideline that helps determine if you can afford a car. It means that, ideally, you can make a 20% down payment, the loan term will be four years or less and the total transportation costs will be 10% or less of your monthly income.

If you can roughly meet these criteria, that car is likely to fit within your budget. Making a large down payment and choosing a short loan term means you will pay less interest, but the payment will be higher than if you chose a loan with a longer term.

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