You can lower your car payment using a few different strategies. Your options may include refinancing your current vehicle, replacing it with a less expensive one or asking your lender for payment relief.
The strategy you choose depends on your personal financial situation. Here are the four most common ways to lower your car payment, why they work and which car owners they’re best for.
1. Refinance your car
Who it works for: Car owners with good credit or who are comfortable with a longer loan term.
Refinancing a car allows you to replace your current loan with a new one. You may qualify for a lower interest rate, especially if you have a record of on-time payments and a better credit score than you did when you took out your current loan. You might also be able to extend your loan term (even if you can’t qualify for a better interest rate), which can reduce your monthly payment.
What to watch out for: Extending your loan term to lower your payment may seem appealing, but it will also increase the amount of interest you pay over the life of the loan. That means you pay less each month but more overall. In some cases, this can leave you upside-down on your auto loan.
How to do it: Shop auto refinance loans and rates with several lenders to find the lowest rate you can qualify for. Most lenders let you pre-qualify with basic information to see an estimated interest rate. This is typically done using a soft credit inquiry, so it won't affect your credit score. If you move forward with the loan, your actual rate may be different.
Use our auto refinance calculator to compare offers with your current loan. The calculator shows if you can lower your car payment and by how much.
2. Sell or trade in your car
Who it works for: Car owners who can’t get a lower interest rate and don’t want a longer loan term.
Replacing your car might seem extreme, 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. If you can’t qualify for a better interest rate and you don’t want to pay more on your vehicle with a longer loan, consider trading your car for a cheaper one.
What to watch out for: Lenders and dealerships can talk around important information. If you take out a new loan on a different vehicle, use our auto loan calculator to see what your monthly payment will be and how much total interest you'll pay. If the calculator shows you something different than what a lender is telling you, ask for details to ensure you’re not paying for additional services you don’t need.
How to do it: 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, but it might take longer than trading it in.
Either way, research your car’s value through online guides like Kelley Blue Book or Edmunds to help you figure out the price you should ask for.
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 so you know if the dealer’s offer is fair.
3. Lease a car
Who it works for: Car owners who don’t want to pay a sizable down payment and don’t drive a lot.
Car leases typically have lower payments than car loans, because you’re paying to drive the car for a set period of time and then turn it back in. Depending on your credit, you may get a lease without making a down payment. This can help if you don’t have enough money saved up to afford a down payment to buy a car, but be prepared to pay other costs, such as the first month's payment and fees.
What to watch out for: Leases limit how many miles you can drive a car, usually 10,000 to 15,000 miles per year. If you go over your allotted mileage, you’ll have to pay an overage fee that costs a certain amount per extra mile. What you’ll pay for mileage overages depends on your contract, but it could cost you several hundred dollars or more if you really racked up the miles.
How it works: The steps to leasing a car are similar to buying a car. If you’re trying to keep your car payment on the lower end, be strategic about which types of cars you consider leasing. Choose cars that hold their value over time, and look up their fair market sales price with guides such as Kelley Blue Book or Edmunds.com. Use this information to compare quotes from several dealerships and negotiate your leasing terms, such as the interest rate (called the money factor for leases).
Use our car lease calculator to see how much your monthly payment will be with different terms to compare your options.
4. Talk to your lender
Who it works for: Car owners who want to keep their loans or can’t get better terms by refinancing.
If you're about to miss 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. You can ask about modifying your loan terms, payment deferral options and whether your lender has a hardship program or other financial assistance available.
What to watch out for: If you find you can afford your original payments after your lender modifies your loan terms, ask whether you can go back to your original payment, since some arrangements allow it. If not, consider paying extra each month to pay off the loan sooner and pay less interest overall.
How it works: 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.
If you’re having trouble making your car payments, you have other debt relief options to try to avoid defaulting on your loan.
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.
Reasons to consider refinancing for a lower monthly payment
You might find your car payment is too high for a variety of reasons:
You financed your car at the dealership and now realize you could have qualified for a loan with a lower rate and payment.
You bought a more expensive car than you could realistically afford.
You’re having difficulty making your car payment because of a temporary financial setback.
Your credit has improved since you bought your car, so you could now qualify for a lower rate and payment.
Whatever the reason you want a lower car payment, take time to make sure it won't end up costing you more in the long run.
