How to Get a Lower Car Payment and Save Cash
Don’t let your budget suffer. Here’s how to get a lower car payment.
Contributing Writer at Tally
December 9, 2021
When you buy a car and sign up for a car loan, you’re taking on a big responsibility. You could be agreeing to make payments for 60, 72 or even 84 months.
It’s important to get the lowest car payment possible.
A low car payment not only protects you if your financial situation changes, but it also frees up your budget to cover other necessary expenses.
Fortunately, there are ways to get a lower car payment either when you sign up for the loan or down the road. Below, we’ll cover tips and tricks to get a lower car payment in both situations.
Get a lower car payment on a new car loan
If you’re in the market for a car and know you’ll need to take out an auto loan to make it work, these recommendations will help you get the lowest car payment possible on a new car loan.
Build your credit score
When you get a car loan, your credit score significantly influences the loan’s interest rate. As the interest rate goes upward, the higher your monthly car payment will be.
For example, a $15,000 48-month car loan at 4% interest will cost $339 per month. If that interest rate moves up to 5%, the monthly payment jumps to $345. That may not seem like much, but that’s $288 extra over the life of the loan.
Aim to build your credit rating as much as you can between now and the time you plan to purchase by making all your debt payments on time, keeping your credit utilization low and clearing up any errors on your credit report.
Boost your down payment
Your down payment can make a huge impact on your monthly payment. It’s a good idea to create a savings plan that will maximize your down payment so you can get a lower car payment.
A larger down payment might also lead to a lower interest rate, which could lower your monthly car payment even further.
Another way to potentially add to your down payment and help you get a lower monthly payment is by bringing a trade-in vehicle with you. Even if your trade is only worth a few hundred dollars, it’s still worth considering.
Shop around for a loan
It may be convenient to get a car loan at the dealership, but it’s not always the cheapest option. Dealerships often profit from the loans they offer you by increasing the interest rate from what the bank initially offered.
The lender may have offered to buy your credit at a 4% annual percentage rate (APR), but the dealership might increase the interest rate to 5%, knowing they remain within your monthly payment budget. A portion of that extra one percentage point goes back to the dealership as a commission.
If you shop around for your own loan at various banks, credit unions and online lenders, you can bypass this markup and you might be able to get a lower car payment.
Plus, coming into a dealership with a loan in hand suddenly makes you the same as a cash buyer, potentially giving you the upper hand in negotiations.
Stick with your needs
It’s easy to see all the available features and want them all. But many of those features that look great now could be unnecessary expenses. Make a list that includes all the features you must have in a vehicle, and try to stick to that list.
By mapping this out ahead of time, you can narrow the list of potential vehicles down to those with the lowest price that still fit your needs. Of course, the lower the vehicle’s price, the lower your monthly payment will be.
Negotiate a lower price
When you choose a new vehicle at the dealership, their sticker price may not always be the best deal. In some cases, this is simply a starting point for negotiations.
Research the vehicle and its fair market value thoroughly via sites like Kelley Blue Book, and negotiate based on your research.
For example, if the dealership offers the vehicle for $15,000, but your research shows its fair market value is $14,000, offer the dealer the lower price. If the dealer refuses, don’t accept the deal, and shop around to see if you can find a dealership with a lower price.
Once you leave the dealership, there’s a chance the dealer may call you shortly after and accept your offer. They may even accept it the moment you walk out the door.
Skip the extras
After choosing the vehicle you want and negotiating the price, the dealership has one more opportunity to sell you stuff: the finance and insurance (F&I) process.
Here, the F&I manager will process your paperwork, but they will also attempt to sell you upgrades, such as GAP insurance, extended warranties, tire-and-wheel protection packages and paint-protection packages.
While these may seem enticing, they’re rarely a great value at the dealership. Some of these products are $1,000 or more, which can add a lot to your car payment. Consider skipping them and purchasing them on the open market if you feel they’re valuable.
Extend the loan terms
A quick and easy way to lower your monthly car payment is to stretch the terms. For example, a $15,000 48-month car loan at 4% interest will run you $339 per month. If you stretched that to 60 months, you would get a lower car payment of $276 per month.
There are a few downsides to this though. First, you will usually get a higher interest rate when you extend the loan terms, meaning the total loan costs go up. Second, even if the interest rate remains the same, you’ll still pay more interest over the life of the loan.
In the example above, the total cost of the 48-month loan would be $16,272, whereas the 60-month loan would cost $16,560. That’s a $288 difference.
Because of this, extending the loan terms is often considered a last-resort measure.
Get a lower car payment on your existing loan
If you already have a car loan with a monthly payment that’s a bit too high, these tips could help you get a lower car payment on your current auto loan.
Refinance your auto loan
You can refinance your car loan as you would a home mortgage. If you got your auto loan when you had bad credit and got stuck with a high interest rate — making the monthly payment unaffordable— you may benefit from this.
Keep in mind that an auto refinance, much like home refinancing, generally requires some equity. This means the car must be worth more than you owe on the loan to get the refinance.
If you’re upside down on the car — the loan amount is more than the car’s worth — you can make a lump-sum payment to reduce the loan balance before refinancing.
Refinancing can also help by allowing you to extend the loan terms and lower the payment. The issue here is the same as above. If you extend the loan terms, you’ll likely pay more in interest over the life of the loan.
Call your lender
Auto lenders would much rather help you afford your car payment than go through the hassle of repossession. Try calling your lender and let them know you’re struggling to afford your monthly payment. The company may have a range of hardship programs they can offer.
You may be able to get a lower car payment for a few months and place the unpaid amount on the end of the loan. Some lenders may allow you to skip a few payments and place those skipped payments on the end of the loan.
Trade in your vehicle for a cheaper one
If you’re struggling to make your car payment and have run out of options, you can always trade your vehicle in for a cheaper one if you have equity in the vehicle.
Let’s say your car is worth $10,000, but you only owe $6,000 on the loan. You have $4,000 in equity that acts as a down payment on your next car.
With that size of a down payment, you may be able to get a lower interest rate.
Moving toward financial freedom
A car is necessary for most people, and getting reliable transportation often means taking on a car loan. You can ease this burden by getting a lower car payment upfront or lowering it later through refinancing or other means. Regardless, keeping your car payment as low as possible could free up cash in your budget for other important financial needs.
Another budget-saving move is paying off high-interest credit card debt with the Tally† credit card debt repayment app. The app helps you manage your credit card payments — and Tally offers a lower-interest personal line of credit, allowing you to efficiently pay off higher-interest credit cards.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.