How To Lower Your Car Payment

How To Lower Your Car Payment

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated August 10, 2022

High car loan payments can drag down your finances and make bills difficult to cover. This is particularly true if your payments fit well within your budget when you initially took out your car loan, but your finances have since changed. In this case, lowering your car payments might help provide some financial relief.

Luckily, there are plenty of ways to lower your car loan payments. Let’s take a look at some of the steps you can take to help make your car payments easier on your wallet.

How To Lower Your Car Payments Before Purchasing

Be strategic about your car payments before you commit to a purchase. Here are a few ways to ensure your car payments are within your comfort zone before you buy your next vehicle: 

Provide A Higher Down Payment 

A higher down payment means a lower loan amount, which translates into lower car payments. If time permits, save up as much as you can to put towards the down payment on a car loan so you don’t have to borrow as much. Plus, a higher down payment could also increase your odds of loan approval with a lower rate and more favourable terms. 

Increase Your Term Length

The longer you have to repay your loan, the smaller your loan payments will be, as they’ll be stretched over a longer time frame. Longer loan terms are usually more budget-friendly for consumers, making it easier to squeeze in car loan payments with all the other bills on the table.

Just keep in mind that even though a longer-term might mean cheaper car payments, you’ll be paying more interest over the life of the loan. Check out how your term length can affect your loan cost with our car loan calculator.

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Shop Around For Rates

Not every lender offers the same interest rates. Just like you’d shop around for the best price on a car, you should also comparison shop for loan products and rates

A lower interest rate means you’ll pay less in interest, which also means lower car payments. A larger portion of your payments will be going towards the principal component, which allows you to pay your loan off faster. 

Shop around before committing to a loan to find the lowest rate on a car loan.

Buy A Used Car 

Used vehicles are typically cheaper upfront than brand new cars. Moreover, the moment you drive off the lot, the value of the new vehicle depreciates dramatically. In general, new cars lose around 40% of its value within the first two years, after that the rate of depreciation slows down. By purchasing a used car, your car will retain more of its value and it’ll cost a lot less. A smaller price tag means a smaller loan, which translates to small car loan payments.

Lease A Car

If you’re a little apprehensive about committing to a long-term car loan, consider leasing instead. Lease payments are almost always lower than car loan payments. While you may not technically own the car, you can ease your financial burden with lower lease payments. 

You can get a lease term for as little as two years, so the time commitment is very low. Plus, you’re free to trade-in the car at any time. Plus, you’ll always have a newer vehicle with each trade-in. 

How To Lower Your Car Payment After Purchasing

Even after you’ve bought your car, there may be some things you can do to lower your car payment, including the following:

Refinance Your Car Loan  

If you think your financial woes might last a while, a car loan refinance might work in your favour. By refinancing, you may be able to snag a lower interest rate compared to the rate you initially locked in at. If you can get a lower rate, you’ll save quite a bit in interest.

Otherwise, you can use a loan refinance to extend the term, which means you’ll have more time to repay the loan and can reduce your payments along the way. Just be aware that a longer term means more interest paid over the life of the loan.

Speak To Your Lender

If you’re struggling to make your car payments due to temporary financial issues, get in touch with your lender. They may be willing to work with you, especially if you’ve been diligent with your car payments up to now. 

Your lender may have some options for you to help alleviate your short-term financial troubles, such as deferring your payments or reducing your loan payment amount for a month or two. 

Be aware, however, that deferring your payments may help you right now, but your loan balance will remain the same and will continue to accrue interest that you’ll eventually have to pay

Sell Or Trade-In Your Car And Buy A Cheaper One

Your loan payments reflect the loan amount you took out and the ticket price of the vehicle. If you can’t revamp your loan or refinance it, consider selling or trading in your car for a more affordable one. 

You can sell the car to a dealership to make the process as simple as possible, but you’ll probably get a little more money for your car if you sell it yourself. Just keep in mind that selling privately requires a lot more work and effort on your part, but you’ll likely be rewarded with a little more money in your pocket. 

Make sure you verify how much it’s worth before selling. This will help you avoid the mistake of selling the car for less than its market value.

How Does It Work? 

If you’re planning on getting another vehicle — albeit a cheaper one — consider trading it in with a dealership. The trade-in value of your current car will go towards the purchase price of another vehicle. For example: If you owe $12,000 on your current car and you trade it in for $15,000, the extra $3,000 would go towards the purchase of your next car. 

Before you trade it in, consider how much you still owe on your existing car loan. Your lender will tell you what the exact payoff amount is, which is your outstanding loan amount. Ideally, you’ll sell or trade-in your vehicle for at least the payoff amount so you’re left without any car payments. 

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Ways To Make Up For Higher Car Payments

Your car might be costing you, but there are a few savvy ways to use your vehicle to bring in some extra cash to compensate for your high car loan payments:

Carpool 

Sharing a ride to and from work with colleagues means sharing the cost of gas and parking. And more people who carpool with you means more money saved. And all that saved cash can help make up for higher car payments. 

Rent Out Your Car

Much like ride-sharing services like Uber and Lyft have transformed the taxi industry, services such as Turo are shaking things up in the car rental sphere. 

There’s a market for car rentals, and if you own a vehicle, you can rent it out to paying customers while you’re not using it. Your car will essentially work for you without you having to lift a finger. All those payments you collect from renting out your car can go towards your car payments. 

All the driving you do every month can earn you some cash by letting businesses use your vehicle to advertise on it. Companies like Wrapify and Carvertise will pay you to advertise on your car

You can choose the size of the ad and how long you’ll allow the ad to remain on your vehicle. The bigger the ad and the longer it stays on your car, the more money you can earn. 

It’s a truly passive way to earn some extra cash that you can use to pay down your car loan.  

Lower Car Payment FAQs

How much can I extend my car loan term?

You can extend the term of your loan by as much as 84 months, depending on how old your vehicle is. But if you’ve already had your current auto loan for a long time, you may not be able to extend the loan by much.

What’s the longest car loan term I can have?

Most lenders offer car loans no longer than 84 months, though some might offer 96-month car loans. 

Is my car loan payment too high?

Like any other loan payment, your car loan payment is too high if it’s over 30% of your net income. You likely have other bills to pay, so you need to make sure your current income is enough to carry all your current debt, as well as your car payments. If you’re teetering over the 30% mark, consider taking steps to lower your payments.

Final Thoughts

Unless you can pay for your car in cash, car loan payments are inevitable, whether you lease or buy. If you find that your current car payments are a bit much for your finances to comfortably handle, there are plenty of steps you can take to reduce them.


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Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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