How To Get A Low Car Payment
Auto loans are expensive, but you can lower your payment before and after financing your purchase. Below, we’ll discuss some techniques that can help you figure out how to get a low car payment.
When Purchasing A New Car
There are a variety of ways you can get a low car payment and save a great deal of money down the road.
Improve Your Credit Score
Before you look into a dealership and shop for a car, find out your credit score. If your credit score is below 650, you may be stuck with a higher interest rate. This type of interest rate can leave you with high car payments and increase the overall cost of your car.
Although, you can improve your credit score and increase your chances of having a lower interest rate. Pay your bills on time, keep your credit accounts open, pay outstanding credit card balances and avoid taking out more loans to help improve your score.
When you’ve improved your credit score, you’ll likely be able to achieve a much lower interest rate. Dealers often treat their customers with excellent credit scores of 750 or higher to interest rates of 2.9%, 1.9% or even 0%.
Compare Loans
Instead of going with the first car loan you find, take the time to look around and compare all the options available to you. If you are already a customer at a bank or credit union, contact them and discuss what type of car loan they can offer you. After they’ve given you a rate and term, go to your dealership and find out if they can offer a better deal than the financing deal you already have.
Since your credit score is likely to go down when you apply for a car loan, complete all of your car loan applications within a two-week period. In doing this, they’ll only count as one inquiry on your credit report and won’t have too much of an impact on your score.
Make a Large Down Payment
A down payment isn’t required to finance a car. Many dealers often advertise “0% down payment required.” The truth is that while you can get a car loan without a down payment, your monthly payments will be higher because you’ll be financing the entire cost of the car.
While putting 20% down is probably the best, this may not be possible for your financial situation, so just focus on saving as much as you can for your down payment. Adding to lower car payments, a higher down payment may give you negotiating power on the price and interest rate of your car loan.
Choose a More Affordable Car
Although it’s tempting to go for the brand-new luxury vehicle with all the additives, going this way can leave you with a very high payment. If your goal is to have a low car payment, choose a less expensive car.
Avoid Long Term Loans
One of the most common mistakes people make when trying to get a low car payment is agreeing to longer term loans. While an 84-month car loan might come with lower payments than a 36-month car loan, you’ll pay more in interest and largely increase the overall cost of your car. The shorter your car loan term is, the less you’ll pay in interest and the faster you’ll own your car.
Think About Leasing a Vehicle
Leasing a car can help you lower your car payment. Here’s how car leasing works – You’ll make monthly payments during the term of your lease. Once the term is over, you can return the car, buy it, extend the lease or trade it in for a new lease. Because you’ll only be paying for the time you’ll be driving the car, you can have lower monthly payments with a lease.
In addition to lower monthly payments, a lease offers fewer repair expenses because most maintenance and repairs will be covered by your warranty. A lease can also give you the opportunity to save money on sales tax and drive a new car that you may not be able to purchase otherwise.
One of the drawbacks of a lease is that it limits how much you can drive. While you can drive a car that you buy as frequently as you like, a lease will typically restrict you a certain amount of miles a year. A lease can also be more expensive in the long run because you’ll always be making a car payment and won’t have any positive equity that you can use toward your next car.
How To Lower Your Current Car Payment
Your car payment isn’t set in stone. It can be lowered, you just need to speak with your lender and take extra steps to make it more affordable.
Renegotiate Your Current Loan
This strategy can be best for when you’re having temporary trouble making payments. Call the lender and talk to a representative and ask to skip a payment (have a payment deferral) or to lower your payments for a couple of months.
The lender may be willing to work with you to find a solution that works for both you and them. Keep in mind that even if you defer payments or negotiate a temporary lower monthly payment, the loan balance will stay the same and it will continue to gain interest.
Refinance
Refinancing your car loan can be best when you’re having a long-term problem meeting the payments. You could get a longer loan term, a lower interest rate or both, depending on your situation. But remember, the longer the loan, the more interest you’ll pay over the term of the loan. Here’s advice on refinancing when you’re upside down on the car loan.
To refinance, apply to a few lenders of your choice. It doesn’t hurt your credit to apply to several lenders any more than it hurts to apply to one, as long as you do all applications within a two-week window.
If you aren’t sure if refinancing is the right option for you there are tools to help you decide. Using an auto refinance calculator can show you what you might be paying if you refinance.
Sell The Car And Look Into A More Affordable Option
If you’re having a long-term problem paying, and refinancing is expensive or not an option, consider selling the car and getting a more affordable one. You can almost always get more money for your car by selling it yourself, rather than taking it in to a dealership.
Here are a few ways you can sell your car when you still have a loan.
- Clean out and wash your car. Maybe even get it detailed!
- Take photos in good lighting with good angles to show off the vehicle fully
- Call the lender to get the payoff amount, which is how much you’d need to pay off the car in total. List the car at a price a bit over that so you can lower it in negotiations and still cover what you owe.
- Post your car for sale on sites such as Craigslist, eBay, Facebook Marketplace, local newspaper classifieds and others.
Once you find a buyer, go through with your state’s laws to officially sell it. Then get a cheaper car for yourself, if you still need one. You could use the same online sites to find a car or go to a dealership.
Trade it in
Trading in your car is best for when you don’t want to sell the car yourself, refinancing isn’t an option and you need lower payments for the long term. Almost all dealers accept trade-ins in exchange for a new car and some dealers, such as CarMax, will buy your car without you needing to buy one of theirs. Find the right dealer that accommodate to your needs.
There are two numbers you need to research before you decide to sell
- How much you owe. Again, call the lender to get the payoff amount, which is how much you still owe the lender. You’ll want to sell or trade in the car for at least that much, so you won’t have to make any more payments.
- How much it’s worth. Look up the trade-in value of the car on an industry guide, like Kelley Blue Book, Edmunds or NADAguides. You shouldn’t sell the car for less than what it’s worth, and the goal should be to sell it for more than enough to cover what you owe so you can potentially earn more money to put some extra cash in your pocket. You want to get the best deal possible.
A high car payment can make it difficult for you to meet other financial goals. Thankfully, with a bit of planning and strategy, you can get a low car payment, increase your monthly earnings and improve your financial situation.