Key takeaways:
- Monthly car payments hit record highs in 2022, making it even more important to get the best deal before and after you buy.
- Some of the most effective ways to lower your car payment include renegotiating your terms, putting more money down up front, or refinancing your auto loan.
- Refinancing replaces your auto loan with a new loan with lower interest rates, lower monthly payments, or a longer repayment period.
For many people, a car payment can be one of their most expensive monthly bills. And if you’re like most people, you’d love to lower your car payment.
In this guide, we’ll discuss 8 ways you can potentially lower your monthly car payments. Read on for everything you need to know about how to get a cheaper car payment before and after you purchase a vehicle.
How to get a cheaper car payment before you buy
Shopping for a new or used car can come with serious sticker shock. Between supply chain problems and rising inflation rates, car prices and monthly payments have reached record highs. The average car payment in 2022 is nearly $650.
Fortunately, you can still take a few steps to ensure you get the best rate and lowest monthly payment possible. Consider the following tips to lock in a lower monthly car payment before you buy a car.
1. Shop around for the best rates
As a rule of thumb, take some time to shop around for the best deal before financing a car. It may add time to the process. But you could save by finding an auto loan with better terms, such as a longer repayment period or lower annual percentage rate (APR).
Talk with your auto retailer to see if they offer any special financing for new or repeat customers. You may also check with your bank, local credit unions, or online lending platforms to get a better understanding of your options.
2. Put more money down up front
When you make a down payment, you pay for a portion of your vehicle up front, then finance the remaining amount. Typically, you should try to put down about 20% of your vehicle’s total cost. However, making a larger down payment can reduce your monthly installments and save you money in the long run.
For instance, consider the following scenario. You plan to buy a $25,000 car. You prequalify for a 5-year loan with a 4.5% APR. If you decide not to make a down payment, your monthly loan payments will be $466. You’ll also pay an additional $2,965 in interest over the life of your loan.
If you put down $6,000 up front and finance the rest, your monthly expenses will change substantially. Your monthly payment will decrease to $354, while your total interest costs will drop to about $2,250.
Keep in mind that these are only rough estimates and don’t include taxes or fees, such as loan origination fees or processing charges. Still, using a loan calculator to get a general idea of your expenses can help you decide how much you want to put down and how much you want to finance.
3. Choose a longer-term loan
If saving up for a larger down payment isn’t an option, you may decide to take out a loan with a longer term.
By choosing a longer-term loan, you’ll stretch your payments out and lower the cost of each installment. For example, consider the scenario above once more. You buy a $25,000 car and put no money down, which means you’ll need a $25,000 loan.
The monthly payment on a 5-year loan with a 4.5% APR would be about $466. However, if you choose a 7-year loan with the same APR, your payments will automatically drop to $348, saving you more than $100 each month.
It’s important to remember longer loans may only help you save in the short term. When you take out a loan, the interest on the loan works like a rental payment. The longer the loan, the more “rent” you pay.
Your total interest charges will vary based on your interest rate, too. If you have excellent credit, you may qualify for a rate as low as 2.47%. If your credit falls below the 660 mark, you could pay 6% or more on a new car and 9% or more for a used car.
4. Consider leasing a car
Trying to decide between leasing and buying? The potential monthly savings could help you make your decision.
Generally, the payments on a lease are substantially lower than the payments on an auto loan. That’s because you’re only paying for the vehicle’s depreciation over the life of your lease, instead of its total cost. In many cases, your lease will cover maintenance and repairs, too.
Still, leasing comes with a few downsides. Your monthly payments won’t increase your equity in the vehicle unless you decide to buy out your lease at the end of the term. You may also face steep mileage and wear-and-tear fees.
How to lower your car payment after purchase
If you already bought your car, high monthly payments or an upside-down car loan can leave you feeling stuck. But we’ve got good news. You may still be able to lower your monthly car payments using the following tactics:
5. Renegotiate your loan terms
Your loan provider is the first person you should talk to if you want a lower car payment. This is especially true if you’re at risk of falling behind on your auto loan.
If you default on your loan, your loan provider will have to spend time and money repossessing your car, taking it to auction, or transferring your debt to a collection agency. In many cases, it’s easier for them to work with you to adjust your loan terms rather than letting you default on your loan.
6. Refinance your auto loan
You may also consider refinancing your auto loan to save money. When you refinance your car loan, you replace your current loan with a new one. Ideally, your new loan will come with better terms, such as lower interest rates, lower monthly payments, or a repayment period that works for your needs.
Generally speaking, you can refinance your car loan as long as you’ve owned the car for at least six months and your name is on the title. That said, refinancing makes more sense in certain scenarios.
For instance, if you got stuck with an upside-down auto loan, refinancing your loan can help you get ahead of your payments and start building equity in your car.
Refinancing may also be a good idea if your financial circumstances have changed for the worse. It may allow you to get a loan with a longer repayment period. This could reduce your monthly payments and help you save more every month.
Lastly, you may decide to refinance your car loan if your financial circumstances have improved since you took out your original car loan. When you apply to refinance your loan, your lender will review the same factors your original loan provider considered, like your credit score, repayment history, and debt-to-income ratio. If you got a raise, paid off another loan, or improved your credit score, you may be able to get a better deal.
Refinancing may require extra time and effort, especially when it comes to submitting your personal and financial information and shopping around for lenders. Still, it’s one of the most effective ways to reduce your loan payments without spending more on interest.
7. Make extra payments
Depending on your financial circumstances, you could get ahead of your loan with a few extra payments. Doing so may help reduce your future payments—or allow you to skip payments entirely.
Many loan providers allow you to make extra payments on your loan. However, they often direct the money toward your interest instead of the principal. If that’s the case, you may be able to request extra payments to go toward your loan balance. You’ll reduce the amount you owe and provide a pad if you run into a more difficult financial season in the future.
8. Trade in your car
Is your car worth more than the amount you owe on your auto loan? If so, you may consider trading it in.
Trading your car in allows you to claim your positive equity and put it to work. You can use your profit for a down payment on another car, which will reduce the amount you need to finance and lower your monthly payment. Choosing a less expensive model can help reduce your payments even more.
Wondering how to get lower car payments? Upstart may be able to help
There’s no doubt about it: car payments are expensive. They may get even costlier, too, as inflation rates and demand increase. That’s why it’s so important to learn more about your options and take steps to get ahead of your car loan sooner rather than later.
If you just started the car-buying process, you may decide to make a larger down payment or work with your loan provider to negotiate better terms.
If you already own your car, you could trade it in and purchase a more affordable vehicle instead. On the other hand, you may be able to refinance your auto loan and secure a better rate, longer repayment period, or lower monthly payment. Make sure to shop around and compare offers to get the best rate—or consider refinancing your auto loan through Upstart.
Upstart’s model looks at factors beyond your credit score, like your work experience and education¹, when finding you a loan. That means you could get an affordable loan with terms that work for you, your budget, and your financial goals. And that’s what we call a win-win situation. Learn more about auto refinancing through Upstart today.
¹Neither Upstart nor its bank partners have a minimum educational attainment requirement in order to be eligible for a loan
Car refinance loans not available in IA, MD, NV, or WV.
Won't affect your credit score¹