5 Ways to Lower Your Car Payments

One in five people in Australia who own a car took out a loan to finance their purchase.

The average two-car household ownership costs added up to $15,807 in 2017. On top of that, ongoing maintenance expenses associated with owning a car makes it quite an expensive asset to maintain. This can put a strain on your monthly income.

So, you may be wondering, are there ways to lower your monthly car payment? And, if it is possible, how do you take advantage of the opportunities?

Here are five ways to lower your car payments.

Refinancing the car loan

While most people are familiar with mortgage refinancing, what they do not know is that they can also refinance their car loan for a better deal.

Refinancing your car loan means you get to extend the loan term while lowering your monthly payments. Take a look at a car loan comparison service to get an idea of prices that are within your budget.

However, be sure your car is not too old and is worth more than you are owing before refinancing.

Banks and lenders may turn down your application to refinance a car loan if the vehicle has depreciated more than its retail value.

Improve your credit score

Before you even start hunting for a lender or set foot in a dealership, be sure to find out your credit score. Your credit score goes a long way to determine whether you get high interest on the car loan or not.

And, as you know, a higher interest rate, means paying a substantial amount more each month.

In case of a low credit score, you may want to hold off applying for a car loan for a while (if it can wait) until you have improved your score.

The advantage of going into a car loan negotiation with a lender is that you are in a better position to negotiate a more favourable interest amount.

Shop around for best rates

You may be surprised at how much you get to save by shopping around for affordable rates. Do not just stop at the offers your dealership makes, seek to compare prices from other lenders.

Thankfully, there are so many lenders to check out, start by taking a look at what your bank offers, then review rates from online lenders and credit unions.

Pay attention to the annual percentage rate (APR) and loan term as this will inevitably affect how much you pay every month and for how long.

Down payment

No ways around this if your goal is to eliminate or lower your monthly car payment. You will have to pay cash.

The reality, however, is that many of us cannot afford the luxury of forking out a lump sum to finance a car purchase.

What's the next best alternative? Make a down payment. You see, saving up to make an initial deposit is an excellent way to cut down the loan amount you need to finance a car purchase, which in turn, affects how much you will pay monthly.

Take, for example, suppose you put $5,000 as a down payment for a $16,789 car; you will only need to borrow $11,789 to finance the car purchase.

Suppose you got the loan at 4.88% APR for 48 months, you will only need to pay $271 every month compared to $386 if you had not made an initial deposit - that's $115 freed up you can put into other priority areas.

Trade-in your car

Following the point above, instead of making a cash down payment, you leverage the equity left in your current car to lower your monthly payment by trading it in.

For this to work, though, you will need to have some equity in the vehicle, this means, the amount you owe should be less than the current retail value of the car.

For example, if you owe $1200 in car loan while the going retail price for your car is $7,000, you have an equity of $6,800 on the vehicle.

When you trade-in, the equity you have on the car can be used as a down payment.

The trick to using trade-in to reduce monthly car payment is to go for a downgrade to a more budget-friendly car, this way you pay less each month.

Image Pixabay, License CCO

Martin is a tech and home enthusiast with a background in electronics and computing.