How to Lower Your Car Payment


In the world of personal finance, it’s crucial to understand where your money is going. Car payments are one of the largest monthly expenses for many people. Lowering this payment can free up cash to pay down higher interest debt, contribute to emergency savings or a retirement account, or simply enjoy life to the fullest.

woman driving car

Understanding the costs involved in your car payment can be the first step to finding ways to reduce that amount.

A car payment includes the principal (the original loan amount), interest rate (the cost of borrowing), and potentially other fees or charges. Several factors can affect your car payment, such as your credit score, loan term, interest rate, and the size of your down payment.

6 Strategies to Lower Your Car Payment

If your monthly car payment has become a financial burden, fear not. There are several strategies available to lower your car payment and give your wallet some breathing room.

1. Refinancing Your Auto Loan

Refinancing your auto loan is essentially substituting your existing loan with a new one, often at a lower interest rate. This is one of the most effective ways to lower your car payment.

A lower interest rate results in less money spent on interest over the life of the loan, hence reducing your monthly payment. Additionally, refinancing can also help you leverage changes in your financial status or improved credit score, both of which can qualify you for a lower interest rate.

However, a note of caution: refinancing can sometimes extend your loan term, potentially resulting in a lower monthly payment, but possibly a higher overall cost. For example, spreading the loan balance over a longer loan term reduces your monthly payments, but it also means paying interest for a longer period. Hence, you might end up shelling out more money in the long run.

Before you jump into refinancing, it’s wise to have a candid discussion with your lender about your current financial situation. Also, compare offers from several lenders to find the most beneficial deal.

2. Extend the Term of Your Loan

Extending the term of your loan is another strategy to consider if refinancing isn’t a viable option for you. This means spreading out your existing loan balance over an extended period, thereby lowering your monthly car payment.

To illustrate, imagine your current car loan has two years remaining, and you owe $10,000. Your average monthly payment would be approximately $416 (not accounting for interest). Now, if you extend the loan term to four years, your new monthly payment (again, without considering interest) would roughly halve to $208. This could provide significant relief if you’re dealing with a tight financial situation.

Nevertheless, extending your loan term is not without its pitfalls. The primary disadvantage is that you will be paying interest for a more extended period, meaning more money is spent over the life of the loan. This method also prolongs the period you’re tied to the loan, potentially causing a delay in achieving other financial goals.

3. Downsize to a Less Expensive Vehicle

When your car payments are becoming a burden, it might be time to consider downsizing to a more affordable vehicle. Trading in your current vehicle can significantly decrease your monthly payments, leaving you with extra cash to spend (or save) elsewhere in your budget.

Begin by evaluating your current vehicle’s worth. You can use online tools to get an estimated value or consult with a local dealership. When you’re ready to sell or trade in, remember to compare multiple offers. This will help ensure you receive the best possible price for your current vehicle.

Once you have settled on selling or trading in, it’s time to hunt for a lower priced vehicle. A used car can often be a smart choice, as they are typically less expensive than new car models and depreciate at a slower rate.

However, a cheaper car isn’t only about the sticker price. Other factors like car insurance, maintenance, and fuel efficiency play significant roles in the overall cost of ownership. A car with low fuel efficiency or high maintenance costs could end up being more expensive in the long run, despite a lower purchase price.

Also, consider the cost of car insurance, as premiums can vary dramatically between different car models. Before finalizing your purchase, check with your insurance company to get an estimate of your new insurance payments. You might want to compare rates for several vehicles to determine which would provide the best deal.

4. Negotiate the Interest Rate

Your car loan’s interest rate is one of the major determinants of your monthly payment. Therefore, negotiating a lower interest rate can lead to significant savings.

The first step in this process is to understand where you stand. Review your current loan terms, including the interest rate and loan balance. Also, check your credit score. A good credit score can be a powerful tool in negotiating a lower interest rate, as it demonstrates to lenders that you are a low-risk borrower.

Before you approach your lender, do some homework. Research current interest rates for car loans and come prepared with a reasonable target rate. If you have a good payment history and have improved your credit score, these factors can bolster your negotiation.

Remember, lenders want to keep reliable customers, so don’t hesitate to ask for a better rate. Even a small reduction in the interest rate can result in a lower monthly payment, easing your financial burden.

It’s important to keep in mind that these negotiations will be more successful if you have a history of timely payments and a good credit score. Even so, it never hurts to ask. You might be surprised by what your lender is willing to do to keep your business.

5. Improve Your Credit Score

Your credit score impacts your ability to secure loans and the interest rates you receive. Lenders view your credit score as a measure of your reliability as a borrower. A higher credit score often translates into a lower interest rate, reducing your monthly car payment.

Improving your credit score isn’t an overnight process, but with consistent effort, you can increase it over time. Start by checking your credit report. You’re entitled to a free credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) every year. Regularly reviewing your report can help you spot errors that may be hurting your score. If you notice any inaccuracies, dispute them promptly.

Next, focus on paying all your bills on time, as your payment history contributes a substantial percentage to your credit score. If you have outstanding debt, particularly high-interest credit card debt, work towards reducing it. High levels of debt can lower your credit score and make lenders see you as a high-risk borrower.

Lastly, maintain a low credit utilization ratio—the percentage of your outstanding credit relative to your total available credit. A lower rate is viewed favorably by lenders and can help boost your credit score. That way, whether you are purchasing a different vehicle, refinancing your current loan, or negotiating your interest rate with your lender, you’ll have a higher credit score to help support your case.

6. Making a Larger Down Payment

When you’re taking out a new car loan, a larger down payment can be a powerful tool for reducing your monthly payments. A substantial down payment reduces your loan balance from the get-go, leading to a lower monthly payment. It can also potentially qualify you for a lower interest rate since lenders face less risk with smaller loan amounts.

For example, suppose you are buying a car that costs $20,000. If you make a down payment of 20%, you would need a loan of $16,000. But, if you manage to save up and make a down payment of 40%, your loan would be just $12,000. This decrease in loan balance could significantly reduce your monthly payments and the total interest paid over the life of the loan.

However, this strategy must be balanced against your overall financial health. You wouldn’t want to deplete your savings entirely for the sake of a lower car payment, leaving you vulnerable to unexpected expenses. Evaluate your financial position carefully and consider the long-term implications.

How to Get a Lower Car Payment Before Buying

If you’re considering buying a car, taking proactive steps can help you secure a lower car payment from the start. Here’s a guide to strategies you can employ before making your purchase:

1. Save for a Large Down Payment

As discussed previously, the larger your down payment, the smaller your loan will be. Saving enough money to make a substantial down payment can significantly reduce your monthly car payment, as well as potentially qualify you for a better interest rate.

2. Research and Budget

Before heading to a dealership, research different car models, prices, and associated costs like insurance and maintenance. Having a clear idea of what you can afford and what to expect can prevent you from taking on a larger loan than necessary.

Set a realistic budget that includes not only the car payment but also other associated costs such as insurance, maintenance, fuel, and emergency repairs.

3. Pre-approved Loans

Get pre-approved for a car loan from your bank, credit union, or an online lender before visiting the dealership. Pre-approval gives you an idea of the interest rate you qualify for and how much you can borrow, which can keep you from overspending and helps you stick to your budget.

4. Choose a Car that Fits Your Budget

Opt for a car that fits comfortably within your budget. This might mean choosing a used car or a less expensive model. Remember, a cheaper car will typically result in a lower car payment.

5. Negotiate

Never accept the first offer you receive. Whether it’s the price of the car or the terms of the loan, always try to negotiate. Small reductions in price or interest rate can lead to significant savings over time.

3 Innovative Ways to Make Your Car Generate Income

If you’re facing difficulties with your car payment but aren’t ready to part ways with your vehicle, there’s another route you can take: turn your car into a money-making asset. The idea here is not directly to lower your car payment but to leverage your car to generate extra income, making your monthly payments more manageable.

Keep in mind, these options come with their own considerations and risks, including wear and tear on your vehicle, potential legal liability, and insurance implications. Be sure to fully understand the pros and cons and ensure you have the necessary insurance coverage.

1. Join a Ride-Sharing Platform

Becoming a part-time driver for a ride-sharing platform, such as Uber or Lyft, can be a viable way to generate extra income. These platforms allow you to work on your own schedule, providing flexibility. The income you earn can help offset your car payments and potentially leave you with additional money to meet other financial needs.

Remember, once you’ve reached a more stable financial situation or have paid off your car, you can choose to stop offering ride services while still enjoying the benefits of your vehicle.

2. Share Your Car

If you’re not keen on the idea of driving passengers around, but your car often sits idle, consider renting it out. This lets your car generate income without requiring you to put in additional work hours.

Companies like Turo and Getaround offer platforms where you can list your car for rent when it’s not in use. This can be especially lucrative if you live in a high-demand area, like a city center or near an airport.

3. Deliver Goods or Food

Delivery services are booming, and many companies need drivers. Entities like Amazon, local restaurants, or food delivery services like DoorDash and Postmates could be an excellent fit. You’ll not only earn a wage but often tips as well, helping to cover your car expenses and put some extra cash in your pocket.


Several strategies can help you lower your car payment, from refinancing your auto loan to trading in for a more affordable vehicle. Assess your financial situation and choose the strategy that works best for you. Whether it’s working on improving your credit score or making a large down payment on your next car, remember that any step toward financial freedom is a step in the right direction.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.