If you, like most people, are looking for a way to save money, it may be time to cut down on some of your biggest expenditures, like transport, for instance. This is where purchasing a vehicle comes in.
For most Americans, the only way to afford a vehicle is through a loan. However, monthly payments for a car can take a significant toll on your finances. Hence, if you’re wondering, “How can I lower my car payment?” here are some options for you to consider.
Refinance to Get a Lower Interest Rate
One of the best and the fastest ways to lower your monthly payments is through auto refinance. Even if you’re able to land a slightly lower interest rate with a refinance, you will be able to save a good amount of money in the long run.
Refinance to Extend Your Loan Term
Even though a shorter loan term generally means less interest paid throughout the loan, you can also lower your monthly payment by lengthening the terms. However, extending the term also means that you end up paying more amount in interest. In some cases, it’s even possible to extend out to 84 months.
Buy a Used Car
Imagine buying a new vehicle only to see its value depreciate rapidly. While it is annoying for new car owners, it’s often a great deal for those who shop for used cars. If you don’t want to get into the hassle of auto refinance, you can consider buying a used car for lower monthly payments.
Consider Trading Down
Who doesn’t desire to own a luxurious car? However, at times, investing in an 8-seater only for the sake of its elegant appearance is not sensible, especially when you’re low on funds. On the other hand, an economic model can make your life much easier in terms of both convenience and monthly payments.
The Bottom Line
In the end, reducing your monthly payments is the best way to save enough money in the long run. Moreover, it also helps manage your monthly finances well.
However, for the most part, it’s not easy and requires careful consideration of factors such as a suitable interest rate, shopping for the right lender, credit history, loan duration, clauses such as prepayment penalty, and of course, affordability. Buying used vehicles and considering auto refinance are only some of the many options for an average individual to lower their monthly payments.
How to Refinance a Car Loan
Auto refinance is one of the best ways to land a shorter repayment term length along with a lower interest rate. Moreover, it's a much simpler process than mortgage refinancing, for example. ‘There's hardly an appraisal or an origination fee required. If you're wondering how to start, here's a step-by-step guide to help you proceed.
Check Your Credit
In a nutshell, the higher your credit score, the better the chances of landing lower interest rates. Typically, you should aim for a score higher than 660 for a start. Look for any errors in the credit report and review it thoroughly to see what areas you can improve.
Are You Underwater On Your Car Loan?
Depreciation can cause some car owners to be underwater on their loans. This means they end up owing more on their car than what it's worth and often have a hard time qualifying for refinancing. Hence, the best time to consider an auto refinance is when your car is worth more than what you owe.
Are There Any Prepayment Penalties?
You may be liable to pay the prepaid penalty for paying a loan off early in some cases. Hence, make sure to find out if your lender has added this clause in your loan documentation before moving forward.
How Many Years Are Remaining On Your Car Loan?
If there's only a year or two left, you may want to stick to your current loan. This is because, by this time, you may already have paid most of the interest on the loan. However, if that's not the case, you can consider refinancing into a shorter repayment term with a lower interest rate. This way, you'll be able to save more money overall.
What Documents Do You Need?
Gather all the important documents such as:
- Loan information: Your current balance and the ‘lender‘s name
- Car Information: Mileage, VIN number, proof of insurance, registration, title, etc.
- Income details: Tax forms and pay stubs for the last 2-3 years.
- Personal information: Driver's license and social security number.
Apply For a Car Loan Refinance
Shop around and get quotations from multiple lenders before settling for your new loan. Fill out the official application, ensure the title is transferred to the new lender, and get all the necessary paperwork sorted out.
In the end, auto loan refinancing may not be for everyone, but it does help you save up significantly by shortening your repayment term and reducing your interest rate.