Ways to reduce car payments before you buy

The best time to lock in a low payment is before taking out an auto loan. According to Consumer Reports, the average monthly payment on a new car loan is $600 — up 25% in the last 10 years. A payment that high can make a serious dent in your budget. Here are some tips to help keep your payments as low as possible.

Compare multiple loan offers

Financing your purchase through the dealership is easy, convenient, and quicker than shopping around for other offers, but it may not be your best bet. Interest rates vary significantly from lender to lender. Comparing multiple loan offers from different lenders can help ensure you get the lowest rate possible. If you accept the first offer you receive, you could be paying more than you need to.

Our car loan calculator can help you compare offers and see what your monthly payment would be.

Buy a lower-priced vehicle

If buying the car of your dreams means stretching your budget so thin it jeopardizes your financial health, consider borrowing less to buy a lower priced vehicle. If you've got your heart set on a specific make and model, buying a used version of the same car may be better for your wallet than buying new. Learn more about tips for buying a used car.

Improve your credit

Your credit score is a key factor lenders use to determine interest rates. People with higher credit scores typically qualify for lower rates than people with lower scores. If you have a lower credit score, taking the time to improve it may help you qualify for a lower rate, reducing your monthly payment.

Make a larger down payment

The larger your loan, the higher your monthly payment will be. You can reduce the amount you need to borrow by increasing your down payment. If you can't afford to make a large down payment, consider saving up before purchasing your next vehicle.

Extend your loan term

A longer loan term will result in a lower monthly payment, but you'll pay more in interest over the life of the loan. For example, if you get a $25,000 loan with a 3.5% interest rate for 48 months, your monthly payment will be $559, and you'll pay a total of $1,827 in interest. If you extend the loan term to 72 months, it will reduce your monthly payment to $385, but you'll pay $2,753 in interest.

Extending your loan term also increases your risk of becoming upside-down on your loan since most cars decrease in value over time. If you're in an accident, the insurance company will only pay up to the car's actual cash value at the time of the incident (unless you have gap insurance or loan/lease payoff coverage). If your car is totaled, and you owe more than it's worth, you'll be responsible for paying the lender the difference between your loan balance and the value of your car.

How to get a lower car payment after your purchase

One of the simplest and most effective ways to reduce your monthly payments is to refinance your car loan — if you can qualify for a new one. If you didn't compare multiple offers or your credit has improved since you got your current loan, you may be able to get a lower interest rate by refinancing, which will reduce your monthly payments.

Extending your loan term will also lower your payments, but it's risky because it increases the chance you'll become upside down on your loan and owe more than the car's worth. You'll also pay more in interest over the life of the loan than you would with a shorter loan term.

How to lower your car payment without refinancing

If you don't want to refinance your existing loan but still want to lower your monthly payments, you have a couple of options.

  • Talk to your lender: If you're struggling to make your payments because of financial hardship, get in touch with your lender right away. They may be able to make your payments more manageable by reducing your interest rate, deferring payments, or extending your loan term.
  • Trade in your current vehicle: If you bought a car you can't afford, or your financial situation has changed since your purchase, consider trading in your car for a less expensive one.