7 Ways to Lower Your Car Payment

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Editor's Note: This story originally appeared on The Penny Hoarder.


That’s the average price for a new car right now, according to Kelley Blue Book. That’s the second-highest price on record — only matched by the average in December 2021.

Car payments are following the same trend, with the average monthly payment coming in at an all-time high of $730, according to Cox Automotive and Moody Analytics.

With the computer chip shortage continuing to affect production, car prices don’t appear to begin trending down anytime soon.

For most vehicle owners, that means making the most of what they already have. One way to do that is to lower your current car payment until the vehicle market is a little more budget-friendly.

1. Refinance

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This is probably the most obvious option, but it makes sense if you’re looking to lower your car payment over a longer term.

While you’re at it, you might be able to get a lower interest rate as well. Interest rates have likely risen since you bought your car though. On the flip side, your credit score might have gone up too.

Checking on your refinancing options may be worthwhile. Keep in mind, though, that a longer term means more interest paid over the life of the auto loan.

2. Renegotiate Your Car Loan

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Your lender may let you defer a payment or two if you need to get through a short-term hardship. However, if you need some help in the long term, you can talk to your lender about restructuring the auto loan.

They might allow you to extend the term or lower your interest rate, which makes more sense if you have good credit.

Remember: Lengthening the term means you’ll be paying more interest in the long run.

3. Sell the Car

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You might consider taking advantage of this hot vehicle market to sell your car and look for a cheaper option to get you around. Or maybe you could get by as a one-car household now that working remotely is more common.

By taking on a cheaper car, you can lower your car payment — or be payment-free — and use those savings for other priorities, like saving for a new car in the future.

4. Trade in the Car

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Dealers need inventory right now and are more likely to pay a premium for your used car. Take it in and let them make an offer, keeping in mind you might want something with a more affordable monthly car payment in return.

Before you go, make sure you know how much you owe — you want to get at least that much on the trade-in — and how much the car is worth. You can get a good trade-in estimate through Kelley Blue Book.

5. Make Extra Payments

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Throwing an extra monthly payment toward your car when you can helps you pay off the loan quicker and pay less in interest. But it also lowers your monthly payment in the long run and might even allow you to skip some payments entirely.

One way to do this might be taking an annual tax refund and making a lump sum payment toward the auto loan.

6. Make a Larger Down Payment

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If you already have a car payment, this obviously won’t help. But it’s something to consider for future purchases.

Just like with a mortgage, the more money you put down at the beginning, the lower your payments will be over the life of your car loan.

For example, if you put a $5,000 down payment on a $25,000 car with 7% sales tax and a 4.5% APR, you’ll end up with a $405 monthly car payment on a $20,000 loan.

With no down payment and those same terms, you’d have a $499 monthly payment.

7. Rent Out Your Car

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Yes, you can rent out your car. This makes sense especially if you live in a larger metropolitan area with out-of-town visitors. Maybe settle in for the weekend and let one of those tourists rent your vehicle — save some money by staying in and let your ride earn its keep for a couple of days. You could even offer your car as a rental when you travel instead of paying airport parking.

On the car-sharing site Turo, a 2020 Nissan Altima goes for $60 a day, while a 2016 BMW 4-Series goes for $95 a day. The site offers everything from basic Toyota sedan to an outdoorsy Subaru or Jeep — all the way to an extravagant Porsche or Lamborghini.