How to Lower Your Car Payment: Expert Tips from O1ne Mortgage

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. With car loan balances on the rise, it’s no wonder that many borrowers are looking for ways to lower their car payments. Fortunately, there are several strategies you can employ to reduce your monthly car payment. Here at O1ne Mortgage, we are dedicated to helping you find the best financial solutions. Call us at 213-732-3074 for any mortgage service needs.

Improve Your Credit Score

Before applying for a loan, it’s crucial to check your credit score. A higher credit score can significantly lower your annual percentage rate (APR) and monthly payments. For instance, if you’re considering a $30,000 auto loan with a 60-month term, your credit score can make a substantial difference. A credit score of 550 might result in an APR of 14.1% and a monthly payment of $669.60. However, a score of 820 could lower your APR to 5.18% and your monthly payment to $568.61. That’s a difference of over $100 a month and more than $6,000 over the term of your loan.

Compare Car Loans

To secure the best deal on an auto loan, it’s essential to compare offers from multiple lenders. Key factors to consider include:

• Interest Rate: The cost of borrowing money, expressed as a percentage.
• APR: Combines the interest rate and fees to give a clearer picture of the total cost of borrowing.
• Monthly Payment: Calculate the monthly payment based on the interest rate, APR, and loan term.

Pick a Longer Loan Term

Opting for a longer loan term, such as 72 months instead of 60 months, can reduce your monthly car payment. While this can make your payments more manageable, keep in mind that a longer loan term may result in paying more in interest and fees over time. Additionally, your car may depreciate in value, potentially leaving you owing more than the car is worth.

Make a Bigger Down Payment

A larger down payment means borrowing less money, which can lower your monthly loan payments. It’s recommended to put down 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 save up for a bigger down payment, it can pay off in the long run with lower monthly payments.

Choose a Less Expensive Car

Opting for a less expensive car can significantly reduce your monthly payments. For example, if you’re eyeing a full-size luxury SUV priced around $80,000 but find the payments too high, consider a smaller luxury SUV priced around $35,000. This choice can help you enjoy luxury without stretching your budget too thin.

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 that the average loan for a new car was $41,665 in the third quarter of 2022, compared to $28,506 for a used car. The average monthly payment was $700 for a new car and $525 for a used car, a difference of $175 per month or $2,100 per year.

Lease a Car

Leasing a car generally results in lower monthly payments compared to buying. When you lease, you’re essentially paying for the car’s depreciation during the lease period, rather than paying interest on a loan. However, keep in mind that you won’t own the car at the end of the lease, which means you won’t have a vehicle to sell or trade in.

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 taking out a new loan to pay off your current loan, ideally with better terms. This can be a great way to take advantage of your improved credit score and lower your monthly payments.

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 to identify areas for improvement. For expert advice and assistance with your mortgage needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you find the best financial solutions.