“How to Reduce Your Monthly Car Loan Payments”

“`html

How to Lower Your Car Payment: Tips and Strategies

In the third quarter of 2022, the average balance on a car loan stood at $22,612, up 7.7% from the same time a year earlier, according to Experian data. It makes sense that a borrower with an auto loan would want to lower their car payment. Fortunately, there are several options available to reduce car payments. Here are some effective strategies:

1. Improve Your Credit Score

Before applying for a loan, check your credit score. If your score isn’t where you’d like it to be, see what you can do to boost it. A higher score can lead to a lower annual percentage rate (APR) and monthly payments. For example, a $30,000 auto loan with a 60-month term can have significantly different payments based on your credit score. A score of 550 might result in an APR of 14.1% and a monthly payment of $669.60, while a score of 820 could mean an APR of 5.18% and a monthly payment of $568.61. That’s a difference of over $100 a month and more than $6,000 over the term of your loan.

2. Compare Car Loans

To get the best deal on an auto loan, compare offers from several lenders. Consider the interest rate, APR, and monthly payment. The interest rate is the cost of borrowing money, while the APR combines the interest rate and fees to give a clearer idea of the total cost. A higher interest rate and APR typically result in a higher monthly car payment.

3. Pick a Longer Loan Term

A longer loan term, such as 72 months versus 60 months, can reduce your monthly car payment. However, keep in mind that the longer your loan term, the more value your car will likely lose over time. You may end up owing more on the loan than the car is worth. Additionally, while your monthly payments may be lower, you could pay more in interest and fees over the long run.

4. Make a Bigger Down Payment

A bigger down payment typically means borrowing less money to buy a new car, which can lower your monthly loan payments. It’s recommended that your down payment be at least 20% of the purchase price for a new car and at least 10% for a used car. If you can wait a bit to buy a new car, taking the extra time to save up for a bigger down payment can really pay off in the long run with lower monthly payments.

5. Choose a Less Expensive Car

Opting for a less expensive car can reduce the monthly amount you’ll pay on your auto loan. For instance, if a full-size luxury SUV priced around $80,000 stretches your budget too thin, consider a small luxury SUV priced around $35,000. This choice can significantly lower your monthly payment while still providing a taste of luxury.

6. Buy a Used Car

Purchasing a used car instead of a new one can save you thousands of dollars and lower your monthly payment. Experian data shows the average loan for a new car was $41,665 in the third quarter of 2022, compared with $28,506 for a used car. The average monthly payment was $700 for a new car and $525 for a used car—a monthly gap of $175, or $2,100 per year.

7. Lease a Car

Leasing a car generally leads to lower monthly payments compared to an auto loan. When you lease, you aren’t paying interest, and you won’t own the car once the lease ends. The lease payments cover the amount that the car’s value will decrease during the lease period. However, one drawback is that you won’t own a car that you can sell or trade in at the end of the lease.

8. Refinance Your Car Loan

If your credit score has improved since you took out your car loan, refinancing at a lower interest rate can reduce your monthly payment. Refinancing involves getting a new loan to pay off your current loan, ideally with a lower interest rate and monthly payment.

The Bottom Line

There are several steps you can take to lower your car payment, from improving your credit score and making a larger down payment to buying a less expensive car or refinancing your loan. Regularly review your credit score and credit report from Experian to identify areas for improvement and secure better borrowing terms in the future.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you find the best solutions for your financial needs.

“`