The Best Ways to Lower Your Monthly Car Payment in 2022

How can I lower my car payment?

overview

At the time of purchasing your car, you may have opted for a shorter loan term in effort to avoid higher interest rates and pay off your loan faster. After a couple of months or maybe even a year, you’ve realized this higher monthly payment has caused some strain on your financial situation or maybe even is holding you back from pursuing other financial endeavors. We have listed out and explained some of the ways we have found to help lower your monthly car payment and get your financials back on track. Keep in mind, these are not ALL the ways to lower your monthly payment, but just a few that we have highlighted for you. If you have anymore questions after this, feel free to reach out to us here at Bill Luke CJDR.

Good credit history

One of the deciding factors on your interest rate and one of the top ways to lower your monthly payment is to establish good credit. As mentioned, when banks decide the interest rate for your loan, the number one decider is how good or bad your credit score is. Having an established credit history and a higher score will allow you to pay less in interest and overall lower your payment. If you are having trouble with your credit score, most likely the lender will give you a less than favorable interest rate. We would recommend from a financial standpoint, if you are currently having issues with your credit score to maybe hold off on purchasing a car.

Combine all your debt

Consolidate debt

Another way to lower your monthly car payment is to consolidate your debt by applying for a special loan that will combine all your current debt into one monthly payment, for example, your mortgage, student loans, credit card, and now car payments. When going this route, it is important that you have the proper documentation in alignment. You will need current bank statements, your credit report, and a list of collateral you will use with the new lender. Again, this is an option that banks will give to borrowers who are overwhelmed with debt to help with monthly payments. The danger that comes with this option is that borrowers often see very slow progress on their credit score and can often take up to 2 years to notice results of the rebuilding process.

A longer loan term can lower monthly payments

Longer Loan Term

Before you drive the car off the lot you will already have an opportunity to lower your monthly payment options. This comes when you talk to the finance manager to discuss loan term lengths. Often, people will take a shorter loan term because the bank will give them a better interest rate and they will be able to pay the loan off quicker. Choosing a longer loan term will yield you a higher interest rate but the loan amount will be paid over a longer period of time, thus lowering the monthly payment. Negotiating a monthly payment is not always a guarantee though, to increase your success rate you will need to come in with a larger down payment amount. By paying more upfront, you will lower the total balance and thus lowering your monthly payment.

Refinance

A common misconception is that you can only refinance the loan for a mortgage but that couldn’t be further from the truth. Applying for a refinance on your car is a great way to lower your monthly payment by getting a new interest rate from a different bank. While it is common at some point in time for people to refinance their mortgage, a car loan refinance can be a little bit different. In a car loan refinance, the new bank will pay off the outstanding balance, from the previous bank, and then restructure the loan with a lower balance and interest rate. One tip for finding a new bank to refinance with is to think beyond the big banks. A local credit union might be the best option as they focus to service their clients and not turn the largest profit. Another great thing about auto loan refinancing is that it allows the borrower to keep their payment history from the previous loan and allow you to continue building your credit score and history.

Speak to a professional about a car loan refinance

Car loan modification

If you are going through a tough financial situation you can apply for a car loan modification. While this option is not a permanent fix for having a payment too high, it is a forgiveness option from the bank to temporarily make lower monthly payments. This option however is not offered by all banks and is often used as a last pitch effort to allow the borrower to keep their car and not force the bank to repossess it. When you apply, a few things you will want to have in order are documents such as paystubs, rent/utility bills, and a hardship letter explaining your need for a loan modification. It is important to know that sometimes during a loan modification if the bank doesn’t communicate properly, a repossession can still occur. Lastly, during this process it is very important to be proactive and actively working to lower your monthly payment to avoid the situation turning worse.

summary

At the end of the day, not every car buying experience will be perfect and you may face some financial challenges after. The best thing you can do is not panic and be proactive toward the situation no matter which solution you choose. Buying a car is one of the biggest financial decisions people will make in their life and not every time will be perfect. If you find yourself needing to lower your monthly payment or you won’t be able to make it, use this guide or get advice from a financial professional to assist you. If you are interested in purchasing a car or trading in your current vehicle, come down to Bill Luke CJDR location in Phoenix, Arizona off I-17 and Camelback Road.