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How to Lower Your Car Payment

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If you’re feeling a financial pinch, a lower car payment could lift a lot of weight off your shoulders. Car payments in the U.S. have been increasing for all vehicle types as prices go up. The average monthly payment is $563 for new vehicles, $397 for used and $450 for leased. Whether you’re struggling to make your car payment for a month or two — or you need it lowered permanently — you have options.

5 ways to lower your car payment

1. Talk to the lender

This strategy can be best for when you’re having temporary trouble making payments. Call the lender and talk to a representative — don’t be embarrassed, this situation isn’t uncommon — and ask to skip a payment (have a payment deferral) or to have lower payments for a couple of months.

The lender may be willing to work with you to find a solution that works for both you and them.  Keep in mind that even if you defer payments or negotiate a temporary lower monthly payment, the loan balance will stay the same and it will continue to accrue interest. Still, it’s better than racking up late fees or damaging your credit.

2. Refinance

Refinancing your car loan can be best when you’re having a long-term problem meeting the payments. You could get a longer loan term, a lower interest rate — or both, depending on your situation. But beware: The longer the loan, the more interest you’ll pay over the life of the loan. Here’s advice on refinancing when you’re upside down on the car loan.

To refinance, apply to a few lenders of your choice. It doesn’t hurt your credit to apply to several lenders any more than it hurts to apply to one, as long as you do all applications within a two-week window. The U.S. credit bureaus allow this time period so consumers can rate shop.

3. Sell the car yourself (and buy a cheaper one)

If you’re having a long-term problem paying, and refinancing is expensive or not an option, consider selling the car yourself and getting a less expensive one. You can almost always get more money for your car by selling it yourself, rather than trading it in to a dealership.

Here are a few ways you can sell your car when you still have a loan. To boost its sale price:

  • Clean out and wash your car.
  • Take photos in good lighting.
  • Call the lender or log into your online auto loan account to get the payoff amount, which is how much you’d need to pay off the car in total. List the car at a price a bit over that so you can decrease it in negotiations and still cover what you owe.
  • Post your car for sale on peer-to-peer sites — e.g., Craigslist, eBay, Oodle, Facebook Marketplace, local newspaper classifieds and others.

Once you find a buyer, follow through with your state’s laws to officially sell it. Then get a cheaper car for yourself, if you still need one. You could use the same peer-to-peer sites to find a car or go to a dealership. Here’s how to buy a car on Craigslist.

4. Trade it in to a dealership

Trading in your car is best for when you don’t want to sell the car yourself, refinancing isn’t an option and you need lower payments for the long term. Almost all dealers accept trade-ins in exchange for a new car and some dealers, such as CarMax, will buy your car without you needing to buy one of theirs. Find the right dealer according to your purpose.

There are two numbers you should look up before you go:

  • How much you owe. Again, call the lender to get the payoff amount, which is how much you still owe the lender. You’ll want to sell or trade in the car for at least that much, so you won’t have to make any more payments.
  • How much it’s worth. Look up the trade-in value of the car on an industry guide, like Kelley Blue Book, Edmunds or NADAguides. You shouldn’t sell the car for less than what it’s worth, and the goal should be to sell it for more than enough to cover what you owe.

5. Lease a car

A major advantage of leasing is the low payments they require. If you’ve sold your car, still need a vehicle and are hesitant to get locked into a long-term auto loan, leasing could be a good option.

There are a few types of leases you may be able to get:

  • New car lease. This is the most common type of lease. You can only get a new car lease from a dealership, and you may need good-to-excellent credit to be approved.
  • Used lease. These may not be available everywhere, but they are out there. A used car lease could mean even lower payments than a new one; there may also be less strict credit requirements and no need for a down payment.
  • Lease takeover. This is when you take over a lease from another person who wants to get out of their car lease. The advantages here could include less strict credit requirements, no down payment or incentives from the person who’s trying to offload the car.

4 ways to prevent a high car payment

1. Lower your amount financed

The less you borrow, the lower your car payment should be. Save up a down payment and use a car loan calculator to double-check your budget. Aim to pay 10% to 20% of the vehicle’s price tag and know that taxes and fees will take a chunk of it. Here’s how to save without scrimping and how much you should put down.

2. Shop for a low APR

Here are the current best auto loan rates. The less you pay in interest, the lower your car payment could be. A lower APR also means more of your monthly payment goes to reducing the principal and paying off the loan faster.

As we noted earlier, you can apply to several lenders without unduly hurting your credit, as long as you do all applications within a time window of 14 days. Get a few offers so you can have a choice.

3. Get a longer loan term

We typically don’t recommend getting a longer loan term, especially an 84-month term because the interest adds up over the years. However, you could get a longer loan term for the sake of a lower payment minimum and then pay more toward the loan monthly, only dropping to the minimum payment when necessary.

4. Consider leasing

Leasing is a great way to have a low monthly payment on a new car. If you want to have a new car every few years, leasing is the way to go. Typically, the most economical method of car ownership however, all costs considered, is purchasing a used vehicle. Here’s more on leasing versus buying.

3 ways to make your car work for you

If you want to keep your car but need help affording it, use your car to make money. These solutions won’t lower your payment; instead, they increase your income so you can more easily make your payments. You might make more than enough to cover the car payment, so some extra cash goes in your pocket.

Each of these three options come with risks — make sure you consider them carefully and have the right insurance.

1. Ride-sharing

Enlist with a ride service like Lyft or Uber and taxi people around as a part-time job. Once you pay the car off or your finances aren’t as tight, you don’t have to continue as a driver and you can keep the car.

2. Rent out your car

Instead of driving passengers around yourself, allow people to rent your car when you’re not using it. This way you’re not actually working to earn money — in a way, you’re getting the car to earn money itself. Two of the biggest companies you could do this through are HyreCar and Turo.

3. Make deliveries

Amazon, the U.S. Postal Service, restaurants and food delivery services all hire drivers. You may be able to make a wage, plus tips, to help cover your car expenses and make ends meet. You can read more about side hustles to make extra cash here.

 

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