If you're looking for a few tips on managing a high car payment, you're not alone. The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high.
And that's before adding up the cost of maintenance, fuel, and auto insurance. When you add in inflation and the rising cost of auto insurance, there's no getting around the fact that owning a car is getting more expensive.
Keeping up with these expenses and a $500 automotive payment can be a lot to handle, so here are a few tips to help you manage your monthly payments.
1. Consider refinancing your auto loan
If you want to lower your monthly car payment, one good option is to refinance the loan. If your credit score is better than when you first applied for your auto loan, you may be able to get a better interest rate. Improving your interest rate could help reduce your monthly car payment.
Even if your credit score hasn't improved, you may still be able to refinance the loan at a better rate if you have equity in the vehicle. For example, let's say your original loan was for $40,000, and you have $20,000 left on the loan. If the bank values your vehicle at $30,000, you may have $10,000 in equity.
Having more equity in the vehicle may help you get a lower interest rate, but keep in mind that if you have too much equity, you may not be able to refinance the loan.
2. Map out a budget
Budgeting may be universally despised, but knowing where your money goes every month is the best way to find and cut unwanted expenses.
If you're having trouble making your monthly car payment, setting up a budget to track your expenses is a great first step toward managing your money. Luckily, it's easier than ever to track expenses using budgeting apps.
These apps can gather your credit card payments, bank statements, and other financial information to give you a complete picture of where your money is going. Once you know that, you can hone in on a few expenses to cut -- like unnecessary subscriptions or extra meals dining out -- to make it easier to cover your monthly car payment.
3. Consider consolidating your debt
If you already have the lowest automotive interest rate and have done everything you can with your monthly budget, another way to help with your car payment may be to consider consolidating your debt.
For example, if you have credit card debt in addition to your car payment, consolidating all of your loans with one personal loan could lower your monthly payments. It can also make managing your money easier by having one payment to make each month. It's important to shop around if you're considering this option to ensure you're getting a better interest rate on a personal loan than what you're currently paying.
Even if you don't end up going this route, looking at all of your current debts, their interest rates, and what options you may have to improve your monthly payment amounts can give you a better idea of how to manage your money.
Don't be discouraged
It's easy to think that you're the only one trying to figure out how to manage your money better. Believe me; we're all still learning. If you need some extra help, check out some financial literacy apps that can teach you about budgeting, investing, paying off debt, and much more.
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FAQs
To successfully manage an auto loan, budget accordingly, pay on time and aim for an early loan payoff. Making biweekly payments can help you repay your auto loan faster and save money on interest, as long as early repayment fees don't outweigh your savings.
What 3 things should you do if you can t make your car payments? ›
What should I do if I can't make my car payments?
- Contact your lender or servicer as soon as possible. ...
- Get the agreement in writing. ...
- Refinance your auto loan. ...
- Sell your vehicle.
To successfully manage an auto loan, budget accordingly, pay on time and aim for an early loan payoff. Making biweekly payments can help you repay your auto loan faster and save money on interest, as long as early repayment fees don't outweigh your savings.
What three 3 ways can one lower a monthly payment on a home car loan? ›
How to get a lower car payment: The 4 best strategies
- Renegotiate your loan terms.
- Refinance your car loan.
- Sell or trade in your car.
- Make extra payments when possible.
It depends on how much income you have after your bills and expenses. But as a rule of thumb, your car payment should not exceed 15% of your post-tax monthly pay. For example, if after taxes, you make the U.S. median income of $37,773, you could shop for a car that costs up to $472 per month.
What 3 factors determine the monthly payment on an automobile loan? ›
Here are the 3 major factors that affect both your monthly payment and the total amount you'll pay on your loan:
- The loan amount. It can be significantly less than the value of the car, depending on whether you have a trade-in vehicle and/or making a down payment.
- The annual percentage rate. ...
- The loan term.
Usually the finance is provided by a company which is separate to the garage or dealership. If you can't keep up with payments you can hand the car back. You won't get any of the payments you've made back, but if you've paid more than half of the agreement you'll usually have nothing else to pay.
How can I lower my car payment? ›
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
What is the best payment method for a car? ›
The most efficient way to pay for your vehicle is to bring a cashier's check, which is more secure than a personal check, and guarantees that the funds are actually available.
How do I get a good monthly payment on a car? ›
Follow the 20/4/7 Rule
Here's what the 20/4/7 rule looks like, according to Morris: “Put at least 20% down of the initial purchase price. Finance an auto loan for no more than 4 years (48 months). Make sure that monthly payments add up to less than 7% of your gross income.”
There are several ways to pay off a car loan early, and the best way to do it depends on your situation. Some of the most common ways include making larger payments each month, making a large bulk payment when you can and refinancing your loan to a shorter term or lower interest rate.
What are three ways to lower your monthly payment if you want a mortgage? ›
How to reduce your mortgage payment
- Get rid of mortgage insurance.
- Consider recasting your loan.
- Shop around for home insurance.
- Ask about a mortgage modification.
- Refinance your mortgage.
- Bottom line.
To calculate your monthly car loan payment by hand, divide the total loan and interest amount by the loan term (the number of months you have to repay the loan). For example, the total interest on a $30,000, 60-month loan at 4% would be $3,150.
What are the two major ways to finance a car? ›
Financing a Car. You have two financing options: direct lending or dealership financing. Direct lending means you're borrowing money from a bank, finance company, or credit union. In a loan, you agree to pay the amount financed, plus a finance charge, over a certain period of time.
Can I afford a $500 car payment? ›
Financial experts recommend that your monthly payment should be around 10% to 15% of your monthly take-home pay. Additionally, your total monthly car expenses should be no more than 20% of your monthly income, and this includes your car payment, insurance, maintenance and gas.
What is the 20 3 8 rule? ›
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
What is too high of a monthly car payment? ›
Key takeaways. Your monthly auto loan payments should not exceed 10 to 15 percent of your pre-tax take-home salary. Due to increased vehicle incentives, drivers may find relief when shopping for a vehicle this year. To secure the best deal, work to improve your credit score and consider making a sizeable down payment.
What 3 factors determines the cost of a loan? ›
The amount you borrow is the biggest determining factor in how much you'll pay to borrow. Your interest rate (which is largely based on your credit) also contributes. Your loan repayment term also plays a role in determining monthly and total borrowing costs.
What matters most when financing a car? ›
If you are considering buying or leasing a new vehicle, you may be paying close attention to your credit score. This number determines what your car loan interest rate will be, and will also determine your eligibility for loans.
What affects monthly car payments? ›
Your loan amount, interest rate, down payment and loan term are among the factors used to determine your monthly car loan payment. A good way to estimate what your car loan payment could be is to use an online auto loan calculator such as Navy Federal Credit Union's Auto Loan Calculator.
But you'll need to tread carefully if you want to minimize the hits to your wallet and your credit rating.
- Renegotiate the loan. ...
- Sell the vehicle. ...
- Voluntary repossession. ...
- Refinance your loan. ...
- Pay off the car loan.
Request a loan deferment
If your financial difficulties are temporary, you may be able to request a pause on your car loan payments. For example, if you lost your job and need time to find a new one or were off work for a medical emergency, your lender may be willing to work with you.
How many months can you be behind on a car payment? ›
In some states, a lender can repossess your vehicle if your payment is just 1 day late. Most lenders wait at least 60 to 90 days before taking steps to claim possession of your car. The terms of your loan may also dictate how long the lender must wait to repossess your car.
How many times can you defer a car payment? ›
Some lenders allow no more than one deferment over the life of the loan; others allow as many as two deferments per calendar year. Make sure you're within any limits spelled out in your contract.
