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10 Tips for Paying Less Each Month on a Car Loan

Updated on October 30, 2012

An auto loan can be a really useful tool for helping you get the car that you need to have to get around. However, it can also be a huge financial obligation that becomes a burden to pay each month. The following ten tips will help you to get your car loan down to the lowest possible monthly payment, making it more manageable to deal with each month when that bill comes due.

1. Save up for a down payment before you get a car loan. You may not be able to save up enough money to pay for a car in full but you can certainly save up to put at least a small down payment down on the car. Whatever you pay as your down payment is the amount that you no longer need a loan for. The more you pay down, the less loan amount you need to take out.

2. Trade in your old car as partial payment on the new car. This offers the same financial benefits as paying a down payment on the car. It allows you to reduce the total amount of loan money that you need to take out. Be aware that sometimes a trade-in isn’t the best way to get rid of your old car, though. You may, alternatively, sell the car to a private dealer for a higher price and then use the funds as your down payment to lower the loan cost.

3. Improve your credit score before applying for a loan. The better your credit is, the better the terms of your loan. During the time that you’re saving up for your down payment, you should also be working to improve your credit score. Make on-time payments, pay off as much other debt as possible and make sure that your credit report doesn’t have anything on it that is lowering your score.

4. Look for a low interest loan. You want to pay as little as possible in interest each month. You should shop around to find the lowest possible APR on your car loan. Compare rates from your car sales financing service, your personal bank, other banks including online banks and alternative lenders such as peer-to-peer lending clubs.

5. Accept a longer term of repayment. Car loans may last as short as one year or be for as long as six years. The longer that you extend the repayment plan, the less you’ll need to pay each month. Be aware that there are drawbacks to a longer repayment plan (like the fact that you end up usually pay more in total in the long run). However, it is definitely a way to reduce your monthly car loan payment.

6. Negotiate for a lower price. This is especially important when you are getting your loan financed through the company that is selling you the car. You can do a lot of negotiating to lower the total price of the car as well as the price of your monthly payments. Don’t just accept the first sticker price that they offer. Bring your negotiation skills to the table.

7. Share the cost of a car payment. You can cut your car payment in half if you’re willing to share your car with another person. The most obvious way of doing this is for a couple that lives together to go from a two-car home to a one-car home, both contributing half the payment to the single car. However, there are alternatives as well for people who are willing to get creative. You may charge your teen a small monthly fee to use your car, giving him personal finance skills and reducing your car costs. Alternatively, you may charge a fee to share your car with a neighbor to do errands for someone during your own errand running.

8. Consider leasing the car instead of buying. There are pros and cons to this. You do pay less per month for a car when you lease. However, you don’t get to keep the car at the end of the payment period so you won’t have that equity to sell down the line. It’s an option for lower car payments but it’s one to review carefully before selecting this option.

9. Scale back your choice of car. It’s tempting to get the most car that you can afford but then you’re paying as much as you can (barely) afford each month on that loan. Scale back from what you desire to what you actually need. That may mean getting an economy model or a different brand. Of course, you shouldn’t just get the cheapest car on the market. You want a good, durable, safe car. But you should look at different cars and selecting the least expensive one of the vehicles that you like.

10. Refinance an existing loan. Most of these methods of reducing the cost of your car payment are things that you need to do before you actually get a loan. However, that’s not the only option available to you. You can also opt to refinance your loan down the line in order to reduce the monthly payments of the loan. This is something that you might do if your financial situation changes and you can no longer afford monthly payments that you were able to afford in the past. When refinancing an existing loan, you will want to look at some of the same factors as if you were getting a brand new loan including extending the term length of the loan and lowering the interest rate. Always shop around. Consider getting a personal loan or home equity loan to pay off the existing car loan if that offers a better monthly rate.


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  • ocbill profile image

    ocbill 7 years ago from hopefully somewhere peaceful and nice

    a big down payment should be the norm for people. zero down credit is what hurt our country. Speaking of credit, I could be in the market as I am stoked my credit score only dropped 70 points after a short sale 1 yr ago; still in the 700s :)

  • Simone Smith profile image

    Simone Haruko Smith 7 years ago from San Francisco

    Fabulous tips! I imagine they'll come in handy later on in my life when I think of getting a car ^_^

  • craftdrawer profile image

    craftdrawer 7 years ago

    Great information! We are saving up for my husbands dream car and I will be sure to apply these tips!