How to Lower Your Car Payment
If you are like most people, you are probably searching for ways to make your income go further. One of the first things you can do is by looking carefully at your budget. When doing this, begin with your largest expenditures. According to statistics, transportation costs are the second main category of expenses for most people, coming in just behind housing. It’s estimated that the average American will spend more than $9,500 on these costs per year, which means $800 per month.
The transportation costs include repairs and gasoline, of course, but the most significant cost is the price or loan payment on your vehicle. Since most people use a loan when buying a vehicle, considering if there is a way you can reduce your payment is a smart move. Some of the most viable options for lowering your car payment can be found here:
Refinance the Loan to Help Reduce Your Car Payment with a Lower Interest Rate
If you currently have a loan, one of the easiest ways for you to reduce your car payments is by refinancing the loan to get an APR that is lower than what you currently have. On average, you will be able to decrease the interest rate by about 2.4 percent.
You may wonder why more people don’t try to make this move – after all, it’s one of the fastest ways to reduce your costs. However, the case is, most people aren’t even aware that they have the option of refinancing their loan.
While the 2.4 percent mentioned above may not sound like that much, it may mean up to $2,200 in savings for the life of the new loan you receive. This makes it a significant amount and something worth looking into.
Extend Your Term by Refinancing Your Auto Loan
The shorter the term is, the less interest you will pay during the life of the loan. However, if you choose to lengthen the term of your loan, it may reduce the payment you must make on your car each month. In some situations, these reductions are significant.
The market for car loans is huge, with more than one trillion dollars in outstanding loans currently. What this means is that all types of investors and lenders are involved in this market. This also means that you can find an array of car loan terms. Loan terms can typically be extended out to as much as 84 months.
An example would be if you have a principal loan balance of $25,000 and the remaining term on your car loan is 50 months and you are working with a five percent interest rate. If you opted to refinance for a term of 60 months and keep the five percent interest, then your payment may drop by as much as $80. While you will be spending more in total interest costs in the end with the new 60-month term, there are situations where this change would make sense for your financial situation, especially if you are trying to free up cash flow on a monthly basis.
When You Are Ready to Buy Another Vehicle Go with a Used Option
You have probably heard (more than once) that as soon as you drive your new vehicle away from the lot that it will lose between 10 and 20 percent of your vehicle’s value. Nothing really has changed except the fact that you are now the owner of not a new vehicle, but a used one.
Even though this depreciation can be annoying to those who choose to buy new, it is great news if you are willing to buy used. Modern vehicles are more reliable, durable, and last longer than they ever have in the past. This means that a used vehicle may be a great option. On average, you will pay approximately $400 on average each month for a used car, while the monthly payment for new vehicles hovers around the $536 mark. This difference of $136 can be big.
Trade Down to Reduce Your Car Payment
Did you buy a car that was just too big for your needs? Is that eight-seater SUV a pain to get into an average parking space? Also, the leather seats you opted for in your minivan aren’t impressing your children or their friends. If you are in either of these situations, why not sell your existing vehicle and buy something that’s more economical. If you make this choice, you will find that there is an array of dealerships that will likely be more than willing to purchase your vehicle for a fair price with minimal work on your part.
Why Your Car Loan is Likely Too High
If you are like most people, you were probably pretty excited when you went to purchase a new car. That new car smell, fresh upholstery, and look of everything new really seemed worth the price tag. However, the issue is that you probably didn’t put any time or effort into shopping for the right auto loan for your purchase. Up to 70 percent of all car buyers will choose a car loan without shopping around.