How To Lower Your Car Payments Without Refinancing

How To Lower Your Car Payments Without Refinancing

Written by Lisa Rennie
Fact-checked by Caitlin Wood
Last Updated August 18, 2022

Car loans make buying a vehicle easily accessible for many Canadians who don’t have thousands of dollars available to cover the ticket price of these expensive assets. But even still, car loan payments can be difficult to cover in some cases, especially if your financial situation has hit a snag. 

Refinancing is a common option among many car owners who are looking to reduce their loan payments, but this process can often come with additional fees that might not make it a viable option for some. 

Luckily, refinancing isn’t the only way to lower your car loan payments. Let’s explore some other alternatives to refinancing to reduce your car loan payments. 

How To Lower Your Car Payments Without Refinancing

If refinancing your car loan isn’t an economical option, there are a couple of other viable alternatives to consider such as requesting a car loan modification or trading in/selling your car.   

Option 1. Request A Car Loan Modification 

Modifying your car loan essentially means changing the payments on your current loan. The goal is to reduce your monthly payments to make them more affordable for you. Unlike refinancing which involves taking out a completely new loan to replace your existing loan with new terms, loan modification involves keeping your current loan, but simply making changes to it. 

Your lender may agree to lower your car payments through loan modification by lowering your interest rate or extending the loan term to give you more time to repay the full loan amount. 

How To Request A Car Loan Modification?

Follow these steps to request a car loan modification from your lender:

Step 1. Speak To Your Lender 

The first thing you should do is get in touch with your lender and explain that you’re experiencing financial hardships that are making it difficult to cover your monthly car loan payments. While not all lenders will agree to modify your loan, some may agree to provide other solutions to help you avoid defaulting on your car loan. 

Step 2. Gather Proof 

If your lender agrees to modify your car loan, they’ll first want to verify whether or not your story checks out. As such, you’ll need to supply your lender with some documentation that supports your need for lower car loan payments through loan modification. 

To prove that your financial situation is truly in a compromised state, you can show the lender documents such as:

  • A letter from your employer showing that you’ve been laid off or had your hours cut
  • Proof of injury or disability that’s preventing you from working
  • Pay stubs 
  • Bank statements
  • List of current bills and how they may have increased

Sep 3. Submit Your Request 

Write a detailed letter (also known as a hardship letter) explaining why you are requesting a car loan modification, the circumstances that have led to this request, and the terms you’d like to have changed. Once you have everything together, you can formally request a car loan modification.  

What Should You Include in Your Hardship Letter? 

Your hardship letter to your lender should explain concisely why you should get approved for a car loan modification. This letter represents a formal request for loan modification, though it may not necessarily be required. That said, it can be helpful to have one ready to present just in case.

This letter should include the following:

  • A detailed explanation about why covering car loan payments is difficult
  • Information about the circumstances that have led to a reduction in income (ie. job loss, reduction in hours, reduction in pay)
  • Reasons why your current bills have increased (ie. unforeseen medical expenses due to injury or disability)
  • An explanation of exactly how much you can afford to pay in car loan payments
  • The new terms you are requesting

Be sure to clearly express your intent to pay the loan in full.

Step 4. Accept Or Reject Lender’s Decision 

Your lender will review your request and either accept, reject or offer a modified version of your request. As such, be sure to carefully review the new terms your lender offers/accepts. If necessary, you may choose to negotiate with your lender until you reach an agreement you can both be satisfied with. 

Whether you accept or reject your lender’s offer, you should provide an answer promptly.

Option 2. Trade-In or Sell Your Car For A Cheaper One 

Another way to deal with your expensive car loan payments without modifying or refinancing your car loan is to simply get rid of your car altogether. You could then opt for something much more affordable. Here are a couple of options to choose from:

Trade-In Your Car

As long as your car loan is still in good standing and your vehicle is worth more than what you still owe on your loan, trading it in may be an option. Speak with your dealer about trading in your current vehicle for a cheaper one.

In this case, your lender will calculate the difference between the trade-in value of your car and what you owe on your existing loan. This difference will be deducted from your new loan amount for your new car, which should mean lower payments.  

Sell Your Car

Rather than trade in your car for a cheaper one, you could start from scratch by selling your current vehicle on your own. Selling privately will likely help you get more for your car than what dealers offer on a trade-in value. 

But getting more money for your car by selling privately will involve a lot more legwork on your part compared to simply trading it in. That said, if you’re willing to put in the time and work, selling privately could be more financially beneficial. In turn, you’ll have more money to put towards the purchase of a new car.

Alternatives To Lowering Your Car Payment 

Here are some other options to consider when looking to reduce your car loan payments:

Car Loan Payment Deferral 

If you’re struggling temporarily with finances, you might want to consider asking your lender if you can skip a payment or two until you get back on your feet. In this case, your loan payments would be deferred for a specific amount of time, and would later be tacked on to your loan amount at the end of the term. 

In this way, you can get some relief by not having to make payments for a while. But keep in mind that you’ll eventually need to make up for those skipped payments. 

Before you can exercise this option, make sure your lender allows it. The option for loan deferrals should either be specified in your loan’s contract terms, or your lender may require a letter of hardship before agreeing to this arrangement. 

Also, keep in mind that the interest on the deferred loan payments will still accrue, so you could wind up paying slightly more in interest over the life of the loan. 

Save Money on Car Insurance 

There are other costs associated with owning a vehicle besides loan payments, one of which is car insurance. It’s mandatory to have an active auto insurance policy in effect when you take your car out on Canadian roadways, but that doesn’t mean you have to spend more than necessary. There are plenty of ways to reduce the cost of your car insurance policy to help save money without making any changes to your financing, such as the following:

  • Comparison shop for the lowest rates. Before you buy a car insurance policy, shop around with different insurers to find the lowest rate for the coverage you need. 
  • Ask about discounts. Insurance providers offer discounts to clients that fall under several categories, such as students, experienced drivers, drivers with a clean driving record, and those who bundle policies. 
  • Increase your deductible. Generally speaking, a higher deductible means lower premiums. You can save a few hundred dollars or more each year in premiums if you opt for a higher deductible, which hopefully will never have to be activated. 
  • Reduce your coverage. Some insurance policies come with all the bells and whistles, but do you really need them all? If not, consider removing unnecessary types of coverage, which can be a great way to lower your premiums. 
  • Drive less. Insurance providers consider how much mileage you put on your car every year when calculating your premiums. If it’s feasible for you, consider leaving your car at home as much as possible to help keep your premiums to a minimum.
  • Buy a car that’s cheaper to cover. Some cars are more expensive to cover than others. Before buying a new car, consider how much it will cost to take out an insurance policy on it first. 
  • Improve your credit score. Insurance companies look at credit scores to determine the likelihood that clients will file insurance claims. Having a strong credit score can result in a lower price for a policy.

The money saved on your insurance policy by adopting any one of the above-mentioned measures can help to offset the cost of your car loan payments.  

Lower Car Payment FAQs

Can I lower my car payments by leasing my car?

Lease payments are often lower than financing payments because you’re only paying for the depreciation of the vehicle over the lease term, in addition to interest charges, taxes, and fees. Over time, you could save more on a bundle. Once the lease period ends, you can start a new lease or buy the car at a predetermined amount. 

Can I lower my car payment without refinancing? 

Yes, you can reduce your loan payments without refinancing through a process known as loan modification. If you can prove to your lender that you’re having financial challenges that are making it difficult to cover your loan payments, they may be willing to work with you to reduce your payments. This might be either through a reduced interest rate or an extended loan term.

Can I pay off my car loan early?

Yes, you should be able to repay your car loan off early. However, your lender may charge an early repayment penalty fee. Refer to your loan contract or speak to your lender to verify whether or not such charges apply. 

Final Thoughts

If you’re looking to reduce your car loan payments, don’t automatically settle for a refinance. Some other ways to lower your payments include loan modifications, trading-in or selling your car for a more affordable one, or taking steps to reduce other costs; like your insurance premiums. Weigh your options by assessing your needs and situation before determining the best way to keep your car loan payments to a minimum.

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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