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You can lower your car payment, but the strategy you choose depends on your personal financial situation. You might find your car payment is too high for a variety of reasons:
Maybe you financed your car at the dealership and now realize you could have qualified for a loan with a lower rate and payment.
Perhaps you bought a more expensive car than you could realistically afford.
Maybe you’re having difficulty making your car payment because of a temporary financial setback.
Or it could be that your credit has improved since you bought your car, so you could now qualify for a lower rate and payment.
Your options may include refinancing your current vehicle, replacing it with a less expensive one or asking your lender for payment relief.
1. Refinancing your car
Refinancing allows you to replace your current loan with a new one and hopefully lower your car payment in the process. You may qualify for a lower interest rate — especially with a record of on-time payments — and be able to extend your loan term or both, enabling you to reduce your monthly payment.
Even though extending your loan term to lower your payment may seem appealing, be aware it will also increase the amount of interest you pay over the life of the loan.
When refinancing, you should shop for refinance lenders and compare multiple offers. Most offer the option to pre-qualify with basic information to see your likely interest rate; doing so will not affect your credit score. Use our refinance calculator to compare offers with your current loan and see how much you may be able to lower your car payment.
2. Sell or trade in your car
If you love your car, replacing it might seem like an extreme measure. But buying a cheaper car with lower payments is better than falling behind on bills, damaging your credit or having no breathing room in your budget.
To sell your car, call your current lender to get the payoff amount on your loan. Your goal is to get enough from selling your car to cover what you owe. Selling the car on your own will typically get you more money than selling it to a dealership. Either way, you should research the value of your car through online guides like Kelley Blue Book or Edmunds, which will aid in determining the price you should ask for.
If you owe more than your car is worth, you might be tempted to roll the negative equity into a new loan with a longer term, but this is a costly way to lower your car payment. That debt will be rolled into your new car payments, plus interest. If you take a long loan to keep payments affordable, you’re likely to find yourself “upside-down” on your car loan.
If you plan to buy a less expensive car from a dealer and don’t want the hassle of selling yours on your own, trading in your current vehicle is also an option. Be prepared and research your car’s trade-in value through online guides so you know if the dealer’s offer is fair.
3. Lease a car
Selling your current car and leasing a new one may be a way to lower your monthly car payment. Car leases typically have lower payments, because you’re paying to drive the car for a set period of time and then turn it back in.
The intent of a lease isn’t that you will ever own the car, although there are ways you can buy your leased car if you choose to at some point. Most leases are for new cars, but it is possible to find dealerships that offer leases for used cars.
You can also trade in your existing vehicle for a leased one. If you’re “upside-down” on your current car — you owe more than it's worth — you may be able to roll the negative equity into your lease. This is a costly solution because your lease payments will include all the negative equity. However, you will have broken the negative equity cycle when the lease is over and the car is returned.
Explore lease buyout loans
4. Talk to your lender
If you're on the verge of missing a car loan payment, talk to your lender right away. Most will be willing to work with you, especially if you're experiencing a temporary financial setback.
The lender may allow "forbearance," which is an agreed-upon period of time when you can skip or make reduced payments. It may also extend your loan term, meaning you would make reduced payments for additional months.
A payment reduction or deferral simply delays payment of what you owe rather than reducing it. In fact, you could end up paying more interest over the life of the loan, as well as extra payments at the end of your loan. However, that's a better option than damaging your credit with a repossession.
The best time to lower your car payment
While you have options for lowering your payment after financing a car, the best time to lock in a payment you can afford is before signing a loan or lease agreement.
If the payment is a pinch today, when the car is new, imagine writing the same check four years from now. Our car affordability calculator can help you figure the maximum car payment and loan amount your budget can handle.