Ways to Reduce Car Payments

A car payment can eat up a good portion of your monthly earnings, so it's best to plan out how much you want to pay before you purchase the car. Decide on the maximum monthly payment you're willing to make, and the dealer will be able to help you figure out how to achieve it. If you're already paying for a car, there are some things you can do, though your choices are more limited.

Consider Buying Used

You may want a nice new car, but if you can't make the payments on it (or if making the payments would be difficult), then check out some used vehicles. Used doesn't always translate to abused, and there are some great cars out there that have had other owners and are still in great condition. Used cars are much less expensive than new cars, and that makes a big difference in the monthly payments.

Make a Large Down Payment

Save up some money before you head to the car dealership. The bigger your down payment, the less you have to finance. This means your payments will be lower, you'll pay less money in interest and you may even be able to pay off the car sooner. If you buy a car with little to nothing down, you're basically borrowing the entire amount for the car, and you'll have to make much bigger payments to get it paid off on time.

Choose a Long-Term Payment Plan

If your only concern is lowering the monthly payments, you can choose a long-term payment plan. This means you'll have longer to pay off the car, and you won't have to make big payments to do so. The downside to choosing a longer payment plan is you'll end up paying a lot more money in interest. Over time, this option is a lot more expensive.

Refinance

If you're trying to reduce payments on a car you already have, you'll probably need to refinance. First, make sure there aren't any penalties for an early payoff in your current payment contract. Choose a financial institution you want to refinance with. This can be the same institution that you're paying now, or you can go through another bank or credit union. Basically, you'll pay a fee (usually a few hundred or thousand dollars, depending on what you owe), and the new institution will pay off your car loan. Then you'll begin making new payments to your new lender. This will change the terms of your loan, and you will be able to work out smaller payments.

Sell the Car

If you need to reduce your payments a lot because you can't make them or they're interfering with your ability to pay for other things, you may need to sell the car. If you just bought it, this is bad because your car will probably be worth less now than when you bought it. You might have to keep making payments for a while because you won't be able to sell it for the full cost of the loan. However, selling the car would enable you to eventually get rid of car payments altogether, allowing you to start from scratch next time you buy a car.