Buying a new car is fun, but what happens if you bite off more than you can chew on that new payment? Is there a way to lower your payment so you can afford that dream car and have the flexibility in your finances to enjoy it? Once the contract is signed, there are only a few ways to lower your payment, but there are steps you can take before and after to lower or get rid of that payment if it’s jamming you up. Below are some points meant to help you see that approaching your next car payment from a more holistic view can help you keep your costs down and enjoy a lower payment for longer.
Sell or trade your car in
Another way to lower your payment is to sell or trade your car in for one with a lower payment. While this might seem drastic, keep in mind that interest rates have recently been cut (at the September 2024 meeting of the Federal Reserve Board) and that could make it easier for you to get a better payment on a different car.
If you’ve had your car loan for about two years, you might have built some equity in it. You could use any equity you have in your current car loan as a down payment on a newer car loan and could walk away with a lower payment. Of course, this scenario is predicated on several different assumptions that might be different than your personal situation. It’s always best to do your due diligence to see what’s right for you.
You can look up an approximate value for your vehicle using several different online resources, but most of them will require you to enter your 17-digit VIN, or vehicle identification number, as well as the mileage of the car and a rough estimate of its condition. Once you know the approximate value of your car, you can compare that value to the remaining balance on your loan. The difference between the two will tell you how much equity you can probably get if you sell or trade your car in.
If that position is favorable, it might be a good time to consider selling or trading and you might be able to get a lower payment plus the benefit of a lower interest rate due to market conditions. Plus, lenders generally favor customers putting money into the loan as a down payment, and your interest rate could lower further, which could also result in a lower payment.
Keep in mind, though, that every financial situation is different, and you should carefully consider your own before moving forward on a major purchase like a vehicle.
Make extra car payments
Part of thinking about your car loan holistically is planning ahead. If you find your car loan payment a burden, you might start planning how to pay it off early and get out from underneath it. When you make your regular monthly payment, on or before your due date, extra amounts you can pay in addition to your regular monthly payment will go to the principal balance of the loan, generally speaking. You should check with your lender to make sure this is something they’ll allow.
When you pay down your principal in this manner, you’ll be able to pay your loan off faster, which will help keep you worry-free when it comes to car payments.
How to get a low car payment before buying
If you wanted some extra guidance on how to lower your car payment before you even buy a car, these pointers might be able to help.
- Paying in a timely fashion – Likely the most important part of helping build your credit is paying early or on time. Lenders usually look favorably on consumers whose credit reflects timely payments.
- Save money for a down payment – If you know you’re going to need a new car loan soon, you can start saving. A down payment can help get you a favorable interest rate from a lender, generally speaking, as a down payment shows that a consumer is invested in paying the debt off.
- Review your credit report – It’s a good idea to review your credit every year. You can get one free credit report a year from Equifax, Experian and TransUnion (these are the three main credit reporting agencies), and you should review it to make sure there’s nothing on your report that you don’t know about. Scams abound these days, and doing your due diligence to protect yourself can help keep your report accurate when you need it to be.
Lowering your car payment might not be the easiest plan to put into action, but if you think of your loans more like helpers on the path to your financial goals, you can stay ahead of the game. A little planning and hard work can help you get your car loan payments manageable.
Keep Drive® in mind the next time you’re shopping for a car. It only takes about two minutes to get pre-qualified, and it doesn’t impact your credit.
