You just bought a new car and are excited to take it on your first drive. But then you look at your loan paperwork and realize that your monthly payment is more than you can afford. What now? You could try negotiating with the dealer for a lower price, but this only works sometimes. Here are some other strategies to get a lower car payment.
Lower APR
The first step to reducing your car payment is to lower the APR. This is the interest rate you pay on your loan, and it’s usually higher for new cars than used ones. So if you have good credit, ask for a lower APR. If you have bad credit, ask for a lower APR too!
You can get a better deal by looking at different lenders as well. For example, if one lender offers an extended warranty with their financing package but another doesn’t offer this add-on service, go with the lender who does offer it!
Make a bigger down payment
The most effective way to reduce your car payment is simply by making a bigger down payment. For example, you can get a lower interest rate and smaller monthly payments by putting down between 5% and 20% of the total cost of the vehicle. It might seem like an enormous amount at first glance, but keep in mind that when you make that larger down payment, you’re getting more equity in your car right off the bat.
Lantern by SoFi advisors explains, “A larger car down payment lowers the overall size of your auto loan. That helps you save money in several ways.”
Shorten your loan term
You can reduce your monthly car payment by shortening the length of your loan. The longer you have a car loan, the more interest you’ll pay over time. However, refinance into a shorter-term loan if you can afford to make higher monthly payments and are only planning on keeping your vehicle for a few years. This way, you will only pay more interest than necessary and can keep control over making more manageable monthly payments.
Refinance through your credit union
Rethinking your car payment is easier said than done, but it’s not impossible. Your best bet is to refinance through a credit union. Credit unions are non-profit financial institutions offering better rates than banks and lower fees, such as overdraft protection and late payments. In addition to having better rates at hand, they can help you find a loan that fits your needs more appropriately than what’s currently available in the market.
Look into deferred or skipped payments plans
There are two types of these plans: deferred payment plans and skipped payment plans. A deferred payment plan allows you to pay off your loan in full over an extended period, usually a year or more. You can also make smaller payments on your current car loan by skipping one or more monthly payments altogether.
If you’re looking to lower your monthly car payment, a few options are available. First, you can get a better APR by refinancing at another bank or credit union. You could also pay off more of the loan with each payment so that less interest is being accrued over time. Finally, if all else fails and you need help reducing your payments now, consider asking if they offer deferred or skipped payment plans (or both!).