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How to lower your car payment

November 11, 2016
If you have an auto loan, consider these options to find out if you might be able to reduce those regular payments and put them toward other expenses.

If you own a car, you might have paid for it with a loan from a bank or other lender. Car loans can be extremely helpful to people who don't have adequate cash savings to afford a lump sum payment of several thousands of dollars. However, monthly payments toward loans can put a strain on your budget. That's why if you have an auto loan, consider these options to find out if you might be able to reduce those regular payments and put them toward other expenses.

Lower insurance

"If you're looking to lower your car payment, start with the basics.”

Perhaps the first and easiest step to take when looking to reduce vehicle ownership costs is to take a close look at your auto insurance. According to the National Association of Insurance Commissioners, American drivers pay $900 per year on average to insure their cars. But it's not out of the ordinary to end up paying much more than that for service and coverage that isn't much better than the typical policy. One of the most consistently effective ways to reduce insurance costs is to shop around for a different policy. Consider getting three quotes from a different insurance provider and evaluate how much you might be able to save.

Refinance

Another option for lowering monthly car payments is to apply for another loan. This is called refinancing, and as Nerdwallet explained, the process has never been easier thanks to a variety of options available online.

While it might not take long, refinancing isn't a decision that should be rushed. Many loan refinancing companies might offer a seemingly attractive offer that isn't well-suited to your financial needs. Before pulling the trigger on a refinance, here's what you need to know:

  • Be sure you have all the necessary documents and information on your current loan, including your monthly payment, the time remaining to pay, the interest rate and the lender's contact information. In many cases you'll also need your driver's license, your car's VIN number, recent pay stubs and your Social Security number.
  • If you get an offer for a refinance, do the math to see how much you'll save over your current loan (if at all). Getting a lower interest rate is usually good, but lenders will also charge flat fees for refinancing loans, which could end up costing more money.
  • Once you've read over all the terms of the loan and are ready to accept, make sure you get everything in writing and know who to contact with questions.

Pay down debt

Of course, the most basic way to trim a monthly car payment is to pay it off as soon as possible. Just like credit card debt or a mortgage, your interest rate applies for as long as you owe money on the loan. That means the payment is only more expensive the longer you take to pay the full amount.

While it may seem counter-intuitive, if possible, put a little extra toward each monthly payment to pay it down faster. This could end up saving hundreds or thousands of dollars in the long run, even if it is the more expensive option. Anyone with a little extra cash to spare should take this approach to reduce car payments quickly.

If your budget doesn't allow for faster payments, and a refinance doesn't make sense, the best option is to cut back on other expenses, or look to earn extra income. Working harder or making sacrifices for the car payment can be frustrating, but missing a monthly payment will only add to your financial problems, making things much more expensive in the short and long term.