How To Lower Your Car Payment

Here's why your monthly payment may be higher than usual and how you might be able to lower your car payment.

Elliot Rieth | 
Aug 24, 2023 | 4 min read

Operating budget with the December calendar and a red penAdobe Stock

Between inflated costs of buying a car and increased monthly fees, you may be wondering how to lower your car payment. Finding the right solution for your needs will likely depend on whether you want to pay more upfront or over the long term, as well as factors such as your credit score or your current loan terms.

Why Are Car Payments So High Right Now?

Car payments are high in large part due to inflation. Inflation impacts every purchase we make, and buying a car is no different. The July 2023 shows new vehicle costs are up 4.7%. Unfortunately for consumers, these high costs are unlikely to stop at the purchase price.

The Federal Reserve is showing for auto loans as well, as of the summer of 2023, with an average rate of 7.48% on a 60-month new-car loan. For those who already own their car, the operational costs are getting more expensive, too. In a , AAA found that the average monthly cost of car ownership in 2022 was $894.

With rising operational, loan, and purchase costs, finding ways to lower your car payment could help you get closer to the budget you're willing to spend.

A Higher Down Payment Typically Results in Lower Monthly Payments

Although it may push back your purchase date, a higher down payment means you'll pay less over the lifetime of your vehicle.

Especially with simple interest loans, the less principal you have, the less interest you'll pay over time. This means that even if the interest rate is higher, your monthly payments will be lower. However, this option may not be for everyone, especially if you're in need of transportation and don't have time to save.

Long Term Loans Can Lower Your Payment, but at a Cost

Long-term loans, which are generally considered those of 60 months or more, offer buyers the chance to spread out costs over a longer period of time, reducing average monthly costs. However, these loans typically pose more of a risk to lenders, which means those lenders will likely charge a higher interest rate.

It's important to keep in mind that, although extending the term of your loan will save you money on a month-to-month basis, it will likely cost you more in interest across the lifetime of the loan. Depending on your interest rate percentage and your vehicle's depreciation rate, you could even end up being upside down on your loan.

Boost Your Credit Score Before You Apply

A long-term solution for securing a lower car payment is to improve your credit score. Keeping your credit score up typically increases your chances of getting financed, lowers your interest rate, and helps you negotiate with more leverage at the dealership.

Buying a car with good credit versus bad credit could make a night-and-day difference when it comes to your monthly payments, so take the time to check your credit before you begin shopping.

Consider Whether Refinancing Your Auto Loan Makes Financial Sense

Refinancing your loan will lower your car payment depending on a few key factors, including your credit score, your current loan terms, and the current average loan rates.

If your credit score has improved since you first financed your loan, you may have the opportunity to get a much better rate by refinancing. While interest rates are currently higher than average, waiting for these rates to drop can help you take advantage of lower average rates as well.

Refinancing can even help you potentially adjust the length of your loan. However, keep in mind that refinancing your loan to longer terms creates the risk of paying more interest over time, potentially causing your loan to go upside down.

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