According to the Experian State of the Automotive Finance Market report in 2020, monthly payments for new vehicles averaged $568. Monthly payments for used cars averaged $397 with $450 for the leased vehicles.
The Federal Reserve Bank of New York pulled data in the third quarter of 2020 to show how dire the situation is. The report indicated that almost 5% of car loans fell delinquent by more than 90 days.
If you are struggling to make your monthly car payments like many Americans today, several options are available to help you lower the costs.
Ways to Lower Your Car Payments
Many car buyers purchase their cars with the help of loans, so it makes sense to consider ways to lower the payments. By reducing the amount, you can improve your monthly budget.
An auto loan calculator is a great tool to help you get a clear literal picture of the loan’s impact on your monthly payment.
Refinancing Your Car
Refinancing your auto loan means replacing your current loan with a new one. Most people will refinance their auto loans to reduce their car payments. Refinancing can qualify you for low interest or extended repayment terms, and in some cases, you may be eligible for both.
These benefits of refinancing an auto loan may seem appealing, but you need to be cautious that it can also increase the interest paid on the overall loan. Just like anything else, you should know the pros and cons of refinancing an auto loan.
There are some tips to consider when refinancing your auto loan, including:
- Shop around for refinance lenders to compare the offers
- Apply for several lenders of your liking
- Use the refinance calculator to contract the offers with your current loan
Vehicle loan refinancing is a great choice when you want to save up money to cater to other significant financial goals. A key gain for this process is that car buyers can maintain the payment history of their original loan. On-time payment would significantly improve your credit score.
Loan Repricing vs. Refinancing
Auto loan refinancing is not similar to repricing. Repricing a loan allows you to switch to another auto loan with the same lender vehicle, while refinancing is typically switching to another loan with a different lender. Both of these loan options can assist in lowering car payments.
When considering auto loans, refinancing is better than repricing. Even though refinancing means changing lenders and is a more tedious process, you will save more money. A different lender may have a more favorable option for you than the current lender, who might just switch a few offers
Lease a Car
Renting a car typically means paying to drive the vehicle for a set time. Another way to lower your car payment is to sell your current vehicle and lease a new one. The goal of leasing a car is not to own the car though you can buy the leased vehicle in some cases.
To lower your car payment, you can trade in a financed car for lease. By doing this, you transfer the negative equity to your lease, which is an expensive resolution. This negative cycle is, however, broken when the lease is over.
There are some types of leases available, including:
- The lease on new cars: You need a credit score ranging from good to excellent to obtain this lease. Only car dealerships offer this type of lease, which is also the most common type.
- The lease on used cars: The payments on this type of lease are much lower than leases on new vehicles and might need less stringent credit requirements. It is rare but available in some dealerships.
- A lease takeover happens when you assume a lease from another car buyer who wishes to opt-out of their lease. In this lease, you enjoy less stringent credit terms and no incentives or down payments.
When looking for an attractive lease deal, here are two things to consider:
- Shop around for several dealers to compare the offer
- You can consider contributing a down payment to lower the monthly lease payment.
Sell or Trade-in Your Car
A vehicle is a convenient addition to our everyday lives, and replacing it may look like such an extreme action. A better option is purchasing a cheaper vehicle with lower payments to stay afloat on your bills and build your credit.
To sell your vehicle, you will need to know the payoff amount on loan. The aim here is to sell your car for enough money to offset the loan amount you owe.
Even though selling your car by yourself is a daunting process, you get more money than selling it through a dealership. There are legitimate online guides such as Kelley Blue Book or Edmunds that help get your car’s price.
If the loan amount is more than the car’s value, you might want to transfer the negative equity to the new loan that usually has a longer repayment term. It is an expensive solution as you will end up rolling the debt into your new car payments, including the interest, which may become too costly for you.
You can avoid all these hassles of selling your vehicle by trading in your current car for a less expensive one from an auto dealer. You need to research your car’s trade-in value via guides found online. This allows you to know whether the offer from the dealer is fair.
Talk to Your Lender
You may suffer temporary financial difficulty and fall behind on your auto loan payments. When this happens, you may want to lower your car payment to stay financially afloat. Your lender might be able to adjust your installments for a while without necessarily refinancing the auto loan to assist you in getting back on track.
Some lenders offer plans that reduce or defer payments instead of reducing them, which means that you end up paying more interest over the loan’s life plus an extra fee at the end of the loan term.
For this reason, the Consumer Financial Protection Bureau recommends finding out if any option from your lender affects your credit report.
The Best Time to Lower Your Car Payment
The idiom “prevention is better than cure” holds true here. While there are several ways to lower your car payment after paying for a car, the best time to settle on an affordable auto payment for you is before you sign a loan or lease agreement.
If it is expensive for you to get that car today, it will be more costly to pay for the exact vehicle a few years later when you get a new one. Before purchasing a car, you should first calculate your auto loan. You can use an auto loan calculator to help you determine the monthly payment and loan amount.
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