You may be looking to lower your monthly car payments for any number of reasons. Perhaps you had an unexpected medical bill and need to free up some money in your budget to afford it. Or maybe you’re looking to spend less on your car payments every month so that you can add more to your emergency savings account. Whatever the reason, here are five ways you could lower your monthly car loan payments.
Refinance your car loan
One way to potentially lower your monthly car loan payments is to refinance your car loan, which could lower your interest rate and extend the repayment term.
Extending your loan term could help you lower your monthly payments by spreading them out over a longer period of time. While this may increase the amount of interest you’ll pay in the long term, it could be worthwhile if you need to free up some money in your budget right now.
Add a co-signer to your loan
Refinancing your car loan with a co-signer who has a better credit score could reduce your interest rate and your monthly payments. When you apply, the lender will assess both you and your co-signer’s creditworthiness, which is how reliable you are as borrowers, before they offer you the terms of the loan.
Make sure your co-signer is comfortable with being responsible for paying back the loan if you default on your payments. Additionally, let them know they could be liable for any late fees, and that any non-payments on your end could damage their credit score.
Improve your credit score
Your credit score plays a key role in determining the terms of your car loan, including the amount you receive and the interest rate you’re approved for by a lender. By improving your credit score, you may be able to negotiate a lower interest rate or better terms.
Improving your credit score won’t happen overnight, but adopting and maintaining good credit habits can help you make progress. Focus on consistently paying your bills on time, limit how many new credit accounts you apply for, keep your credit card balances low and regularly check your credit report for any errors or fraudulent activity. With some time and discipline, you may see your credit score improve.
Talk to your lender
If you’re really in a jam, perhaps after a family emergency or job loss, reaching out to your lender could be worthwhile. If you don’t want to refinance your car loan right away, your lender may be willing to offer you some kind of hardship assistance. This may include changing your payment date, setting up a payment plan or deferring or modifying your loan.1
Before you contact your lender, it’s a good idea to update your monthly budget — or create a budget if you don’t have one yet — and figure out exactly what you can afford to pay. If your lender is willing to negotiate, you’ll be able to give them a number that you can commit to.
Even if you don’t get the exact terms you were looking for, it’s important to communicate with your lender and let them know what’s going on rather than missing payments and risking damaging your credit score.
Sell your car
While it may not be your first choice, another option for lowering your payments is to trade in or sell your car and purchase a less expensive car instead. If you have positive equity in your vehicle, meaning your car is still worth more than you owe on the loan, this could be a smart financial decision.
However, if your car is worth less than what you owe, meaning you have negative equity, it’s unlikely you’ll be able to come out ahead from a sale or trade at a dealership.
Take steps to secure your finances
Before you try to lower your monthly car loan payments, you’ll want to figure out which options are best for your financial situation. Refinancing your car, adding a co-signer, improving your credit score, talking to your lender and selling your car are all potential solutions.
Take a hard look at your budget and reflect on which options could help you better afford your monthly car payments. Once you’ve weighed all the options, you can make the right choice for your individual circumstances.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of disfinancified.com or its employees. Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
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