Monthly expenses can create distress in times of great hardship. Lowering some costs will go a long way to help you get out of a rough patch. Knowing how to lower car payments without refinancing will take a load off your mind as it is one of the biggest expenses due to the increase in all types of vehicles.
On average, the monthly payment for new vehicles is $563; for used cars, it is $397, while for leased vehicles, it is $450. In that sense, there are alternatives that you can apply to reduce some expenses, including the car payment.
Refinancing a loan is not bad since it would make the monthly payment affordable. However, you would be accepting an extended loan term and paying more interest for the duration of the loan. Luckily, refinancing is not the only option for lowering your car payment.
Ways to reduce your car payment
In times of economic hardship, reducing expenses is the most viable solution, as long as you know where to start. Car loan payments are often high, so this is the starting point for many. Refinancing the loan usually brings more stress, so alternatives are sought to prevent refinancing.
When you sign a car loan, the monthly payment is granted for a set period. Accepting the amount paid each month is a big commitment; however, some situations may arise due to changes in the financial area.
Some maneuvers will help alleviate financial stress without resorting to a new loan. Some agencies or lenders offer affordable options, so you are not left on your feet and don’t have to go through recovery. Consider the alternatives:
Loan Modification
A loan modification is similar to refinancing, but it is not the same. Refinancing means applying for a new loan, qualifying for credit just as you did with the original loan. With modification, you ask the lender to modify and reduce payments on the existing loan.
The lender will likely accept the request is high, as the lien issue is costly and time-consuming. The modification includes reducing the interest rate or term of the loan so that the monthly payments would be more affordable.
Another option is for the lender to agree to a short-term payment plan, which involves deferring payments for a few months to provide financial relief. This way out also allows you to catch up on other expenses.
If you are already behind on some payments, you should report that you are experiencing financial difficulties as soon as possible. The lender will agree to split the past-due balance into lower rates for an extended period.
Change to a less expensive car
If you are unsatisfied with the vehicle loan or the debt is higher than its value. Think about the possibility of exchanging it for a less expensive one. The difference between the trade-in value and what you currently owe on the loan reduces the new loan amount.
In this option, you can apply for a trade-in with a dealer. Almost all dealers accept trade-ins in exchange for a new car. They buy your vehicle without you having to buy one of theirs. You have to find the right dealer and cover two important points:
- What you owe, contact the lender to find out how much you owe and sell the car for at least that amount.
- What it is worth, find out the vehicle’s trade-in value from a guide. It would be best if you did not sell it for less than its value; the goal is to sell it for a little more.
Have a private sale
If you want to profit from your car, you can sell it privately. It takes time and patience, but it could mean a good income as private sales put more money in the seller’s pocket. The result may be the purchase of another car, though less expensive.
You should know that there are no vehicles available for sale nationwide. Whether you are looking for a new or less expensive used car, you may have to do some preliminary research to find the vehicle that fits your budget.
If you go for this option, you can increase its selling price in the following ways:
- Clean and wash the car thoroughly
- Take photos in good lighting
- Contact the lender or log in to the loan account to see the settlement amount you need to pay for the vehicle in full. List the car at a higher price so you can reduce it in negotiations.
- Post the car for sale on your preferred platforms and newspaper classifieds.
When to think about refinancing?
Refinancing your loan is only a good option when your credit is good to excellent, and you qualify for a lower interest rate. However, you should request a loan term close to or equivalent to the time remaining on the original loan. Otherwise, you will receive a lower payment but spend hundreds to thousands of dollars in interest.
If you can’t reach an agreement with your lender or can’t trade in your car for one that meets your needs, refinancing may be the way out you’re looking to avoid repossession. You will get the lower payment you need and, at the same time, preserve your credit score, no matter if you have to pay more interest to the lender.
Should note that refinancing is a way to strengthen your finances, as it offers better loan terms. Do it the right way; otherwise, you may end up with worse terms in the long run and have to pay prepayment penalties.
Many vehicle owners are looking to refinance at any time. It is common for those who want to adjust their financial plans to find the ones that best suit their needs. However, as mentioned above, refinancing is not always a good thing.
The high monthly car payment could affect the budget and make you contemplate the possibility of a refinance, but with some disadvantages on the interest rate and the extended time of the new loan. So, alternatives other than refinancing are on the table.