6 Ways To Reduce Your Car Loan Repayments

A car is one of the most significant investments you can make, second only to a house. Unless you have the money to buy a car with cash, financing a vehicle can be a huge financial commitment that averages hundreds of dollars per month.  And with economic prices rising sharply after the pandemic, owning a new car can be costly. Hence, it can put a dent in your monthly budget. That said, there are several ways to help lower your monthly car payments.

These tips can bring some relief to your budget and help make your monthly income go further. 

• Refinance Your Auto Loan

Refinancing your car loan means taking out a new loan with different terms and using it to pay off your existing loan. In general, most people choose to refinance their car loan to secure lower interest rates, meaning you’ll have a smaller monthly payment. 

If the interest rates have dropped since you took out your auto loan or you managed to improve your credit score, there’s a chance that you can refinance to a better loan term. Not only does it help lower your monthly repayment, but it also saves you more money in terms of interest charges over the term of your loan. 

On the other hand, if you’re looking for an easy and fast way to refinance your auto loan, you can consult companies like RateGenius. They have a nationwide network of over 150 lenders, helping you find the best loans that fit your needs and ultimately save money. 

• Pay More Upfront

If you can, having a larger down payment can lower your monthly payment. Paying more money upfront means you don’t have to borrow as much, which helps lower your monthly repayment during the term of your auto loan. Not only that, but it also helps lower the interest you need to pay. 

To give you a better idea, read the example below:

Let’s say you’re interested in the 2022 Ford Ranger base model with a price of USD$25,285. Then, you choose a 15% down payment or USD$3,792.75. If you have a 60-month auto loan with 5% interest, your monthly payment would be USD$405.59. Also, you’ll have to pay a total of USD$2,842.87 in interest. 

Now, if you paid 30% upfront or USD$7,585.50 on that same car and loan terms, your monthly payment would be USD$334.01. This can save you USD$501.69 in interest over the life of the loan. 

• Do Not Skip Monthly Payments

This may seem obvious, but some people still make this mistake. It’s tempting to skip a month when your budget can’t really support it but skipping payments can only lengthen your auto loan term. Plus, it affects your credit score. 

Furthermore, your lender won’t be happy about you missing a repayment and will immediately contact you and try to fix the issue. As a result, you’ll end up paying higher interest on your loan, which can cost you more money. 

• Negotiate For A Longer Term

Auto loans with shorter terms have higher monthly payments. You can negotiate for an extended repayment period if you can’t deal with the high monthly payments. The longer the auto loan term, the lower your monthly repayments will be. Take note, however, that by taking longer to repay your auto loan, you could end up paying more in interest. 

• Trade-In Your Car

If you can’t afford the payments for your current car, you should consider downsizing. You can trade your current vehicle to the dealership, remove the payoff balance, and get a cheaper car. 

Car trading is convenient since you don’t have to list your car and negotiate with potential buyers. However, expect to get wholesale value for your car. This means that you won’t get the best value. 

• Check Add-Ons

Extra items that were included in your original loan contract can increase your total monthly payment. To identify these add-ons, check your auto paperwork. Some of these add-ons may include tire and wheel warranties, service contracts, guaranteed asset protection waivers, and more. 

Most items are necessary and useful. However, some can be removed to help reduce your monthly payment or get a partial refund. Hence, always consult with your dealership or lender to see what add-ons you can cancel and how to remove them. 

Take Away

Having your own set of wheels is a very rewarding experience. Nevertheless, it can also be a burden to your wallet, even with thorough budgeting. If you’re struggling to keep your auto payments or want to get more room in your budget for other things, consider the above tips to help lower your monthly car payment.