Feeling the pinch of monthly auto loan payments on your wallet? If you’ve been spending a lot of time lately thinking “How can I lower my car payments?”, then this post is for you!
Owning a car in the US is becoming a costly affair – even with a cushy auto loan to blunt the financial stress! In fact, according to Experian 2021 reports, the average loan amount taken out for new cars has risen to $35,000 (up by $2000), while the average car loan monthly payments have increased to $600. Rising costs of fuel and other commodities could further make a dent in your finances. We totally understand if your search history in the past few weeks is littered with variations of “How can I lower my car insurance payments?”
Don’t worry, we’re here to help! In this post, the insurance team at Way.com has listed down 7 common ways to lower your car payments. Whether you’re already paying car loan monthly amounts or considering taking a loan to buy a new car, consider these options to get the most value for money!
Pro tip: If you’ve already taken a loan and feel like you got a bad deal, it’s always best to look at auto loan refinancing to lower your car insurance payments.
How to lower your car loan payments 101
1. Refinance your loan to get a lower interest rate
Continuing to pay high monthly installments can take a big chunk out of your finances. It’s also possible that you were offered a bad deal and were charged a higher interest rate than normal – which happens more often than you can imagine! In that case, it’s always best to use auto loan refinancing to replace your current loan with more favorable terms. For starters, use an online auto loan refinance calculator to find out how much you can save by switching to a lower rate. Refinancing can slash loan rates by as much as 2.4% and save you more than $2000 annually!
2. Refinance your car loan payment with a longer term
Common sense dictates that taking a short-term auto loan can reduce overall interest charges – but it also increases the car loan monthly payments. Lengthening your loan term can help in lowering the monthly payments and provide a smoother time horizon for repayment. You’ll be surprised to hear that there is a variety of refinancing terms to choose from – starting from 36 months to as long as 84 months.
For example, imagine you have a loan balance of $25,000 (to be repaid) and 50 months of the term left at a 5% interest rate. Your current monthly payment would be around $550. However, if you refinance at the same interest rate and increase the term to 60 months, your monthly payment would drop to $470 – that’s $80 less every month! Of course, you could end up paying more interest charges in the long term – but unavoidable if you want short-term liquidity! Use an auto refinance calculator to find out how much you can save every month.
3. Try Cash Back auto loan refinancing to get cash in hand
If you’ve been scouring the internet for “How can I lower my car insurance payments,” that probably means your monthly expenses are tight. In this case, use Cash Back Auto Loan Refinancing to replace your existing car loan with a new one based on the current value of the vehicle. You can borrow as much as 125% of your car’s resale value, as long as it has not depreciated below a certain amount. You can use the new loan to pay for urgent expenses while also possibly lowering your car loan payments.
4. Refinance and get a co-signer on the loan
If you’re a student or young professional struggling to pay back an auto loan, you can always rope in your parents or close friends as co-signers on the loan. Refinancing an auto loan with a co-signer can reduce your monthly auto payments to a manageable amount. However, there is an element of risk for the co-signer as he/she will bear the burden of loan repayment in case you default. It could also affect the co-signer’s credit score – so be careful who you onboard!
5. Avoid dealership lending while taking out a loan
When you’re excited about buying your favorite car, mundane things like paperwork can often take a backseat. That’s why many folks settle for dealership finance when taking out an auto loan. While there are some benefits to dealership lending (like low credit score requirements), you are likely to be charged at a higher interest rate – which means higher monthly payments. Unless time is of the essence, we’d recommend shopping around for better loan terms with your bank and credit unions.
6. Buy a used car instead of a new one for lower car payments
If you’re a driver shopping for car loans and have a tight budget, it could be more cost-effective to buy a used car instead of a new one. The used car auto loan rates average around 3.84% while new auto loan rates average 4.3% (according to Experian data). The monthly payment for a used car averages around $400 compared to $540 for a new one. Besides, a new vehicle loses between 10-20% of its value after purchase – while still being quite dependable. Make the most out of this and you can benefit from lower than average auto insurance payments.
7.. Lease out a car instead
Leasing out is an underrated option for drivers who don’t want high premiums. When you lease a vehicle, you rent it out from a dealer for a certain time period – usually 36 to 48 months. After the lease period ends, you can either return it or buy it at a pre-determined amount. Lease payments are much lower than car auto loan payments, which frees up money in your wallet for other emergencies. The monthly lease amount is determined based on several factors like:
- Sale Price
- Expected car mileage
- Length of the lease
- Rent charge
- Residual Value
Can I lower my car payments without refinancing?
The only other way you can lower your monthly car payment without refinancing is by either renegotiating your loan or paying off your loan. However, renegotiating your loan with the dealer has a very low rate of success because he might already have sold it to another financial investor. Any changes in the original loan terms may affect the cash flow expected by the investor – which means the dealer may not be ready to come to the table. Paying off your loan is also a very expensive scenario if you don’t have a lump sum amount with you.