If you’re looking into how to get out of a car loan, you might feel like you have limited options. Fortunately, there are plenty of ways to solve this problem.
Have a look at the various methods you can use to break up with a car loan for good, as well as the pros and cons that come with each one.
Owning a car is exciting, but the monthly car loan payment can quickly become a burden on your budget. As auto prices continue to rise, many people struggle to afford their auto financing. Luckily, there are ways to reduce your monthly car payment and free up more room in your budget.
Refinance Your Auto Loan
One of the most effective ways to lower your monthly car payment is refinancing your auto loan This involves taking out a new loan to pay off your existing one You can potentially qualify for a lower interest rate if your credit score has improved since you originally financed the car. Even a small reduction in your rate can save you money each month.
Refinancing is also an option if you want to extend your repayment term. Stretching out the loan length lowers your monthly dues but increases total interest paid over the life of the loan. Carefully weigh the pros and cons before choosing this route.
Make Extra Payments
When possible, paying more than the minimum monthly payment will lower your principal faster. This reduces the amount of interest charged each month and shortens the payoff timeframe. Even small extra payments add up over time.
You can make weekly or bi-weekly payments instead of monthly to achieve a similar effect. Just be sure there are no prepayment penalties on your loan.
Trade In Your Car
Trading in your current vehicle for a less expensive model can dramatically cut your monthly payment. New cars lose value quickly, so trading a used car for another used vehicle often works best.
Selling privately may fetch more money than a trade-in. But trading in saves the hassle of advertising, showing the car, and negotiating with buyers.
Modify Your Loan Terms
If your lender offers loan modifications this could provide some temporary relief. Options may include deferring a payment or two lowering the interest rate, or extending the repayment term.
Just keep in mind deferred payments accrue interest and can increase your balance. Extending the loan also means paying more interest over time.
Improve Your Credit Score
Having excellent credit opens the door to better auto loan rates. Pay down debts, make on-time payments, and limit credit inquiries to boost your score before applying for a lower rate on your next car purchase or refinance.
Even a small improvement in your credit score can make a difference in the interest rate you qualify for.
Make a Larger Down Payment
Putting more money down upfront reduces the amount you have to finance. This lowers your monthly payment. Come up with a larger down payment by saving diligently before your next car purchase.
If you already have a loan, make a few extra principal payments to build equity and simulate a larger down payment.
Choose a Longer Loan Term
While extending your loan term results in more interest paid, it does reduce the monthly payment. Carefully consider whether the trade-off makes sense for your budget. Calculate the overall impact on your total costs.
As a rule of thumb, auto loan terms longer than 60 months come with exorbitantly high interest rates. Keep your terms within a reasonable limit.
Lower Your Auto Insurance Premiums
Shop around to find cheaper car insurance rates. Maintaining good credit and a clean driving record can also lower your premiums. Consider dropping collision and comprehensive coverage on an older paid-off car.
Review your policy limits and deductibles for potential savings opportunities. But don’t skimp on liability protection.
Negotiate the Purchase Price
Don’t forget – the purchase price significantly influences the monthly payment. Negotiating just a few hundred dollars off the vehicle’s price makes a difference.
Shopping around between dealerships and waiting for promotional offers can help you negotiate the lowest price. Consider purchasing a used car instead of new to score instant savings.
Take Advantage of Manufacturer Incentives
Many automakers provide promotional incentives like customer cash rebates and discounted financing rates. These can directly reduce your car payment. Time your purchase around promotional events to maximize potential savings.
Rebates provide an upfront discount on the vehicle price. Low-APR financing offers help keep your interest costs and monthly payment lower.
The bottom line is you have options if your car loan payment becomes unmanageable. Just act quickly and do your homework to find the best solution for your unique situation. With persistence and smart strategizing, you can reduce your monthly auto expenses.
Sell your car
Another way to get out of your car loan is to sell the car. Depending on how much your car is worth, selling the vehicle can help you pay off your car loan in full and potentially even put a little extra cash in your pocket.
However, if you have an upside-down car loan — also known as a loan with negative equity — you may not be able to pay off your auto loan just by using funds from the sale. In this case, you may need to kick in money from your savings or even take out a low-interest personal loan to cover the rest of what you owe.
To figure out if selling your car makes sense, start by contacting your lender to get the payoff amount. Then, use industry guides like Kelley Blue Book or to determine your car’s value in the current market.
If your car is worth more than the total payoff amount, there’s a good chance it could be worth selling your car. If not, you may want to explore other options.
Can you get out of a car loan?
Yes, it is possible to get out of a car loan, but there are only two ways to do it: satisfying the terms of the loan or defaulting on the loan (which can end up with your car being repossessed).
Unfortunately, it’s not possible to just give back a car and end the financing agreement as though it never happened. Plus, every path to getting out of an auto loan will have its own unique pros and cons.
Be sure to do your research into the potential advantages and disadvantages of each route and weigh them as you make your decision.
How to Refinance a Car Loan (The Right Way)
FAQ
How can I lower my car loan rate?
- Compare multiple loan offers.
- Make a larger down payment.
- Get a shorter-term loan.
- Make additional payments.
- Decline dealer-offered extras.
- Take advantage of special promotions and financing offers.
- Refinance your loan.
Can I lower a financed car?
You can reduce monthly car payments without refinancing by trading in your vehicle, selling it, or negotiating with your lender.
How much is a $30,000 car payment for 60 months?
How can I pay less on my car loan?
- Choose a Longer Loan Term. …
- Make a Larger Down Payment. …
- Improve Your Credit Score. …
- Buy a Less Expensive Vehicle. …
- Lease Instead of Buying. …
- Take Advantage of Promotional Offers. …
- Refinance Your Current Loan.
How can I lower my car loan payment?
This is the amount you want to borrow after making the down payment, and it can be lowered by trading in your current ride or taking advantage of cash rebates (if available). Loan term. A longer loan term can make your monthly auto loan payments more affordable, but it also means you’ll pay more in interest over time. Interest rate.
How can I pay less interest on a car loan?
You can pay less interest on a car loan by following these tips: Car payments are getting more expensive, with the average car payment climbing in 2024—and more drivers than ever making payments of $1,000 or more. Rising sticker prices are primarily to blame, but a car loan’s interest rate also adds to the overall cost.
How do I Keep my Car payments low?
To keep your car payments low, choose a longer loan term. On average, a loan term can range from 24 to 60 months, but many lenders also offer 72- and 84-month plans for drivers looking for an even cheaper option. A longer loan term allows you to pay less each month, but it also increases the amount of interest you pay.
Can I get a lower car loan if I bought a car?
Or it could be that your credit has improved since you bought your car, so you could now qualify for a lower rate and payment. Your options may include refinancing your current vehicle, replacing it with a less expensive one or asking your lender for payment relief.
Should you lower your car payment?
With rising operational, loan, and purchase costs, finding ways to lower your car payment could help you get closer to the budget you’re willing to spend. Although it may push back your purchase date, a higher down payment means you’ll pay less over the lifetime of your vehicle.
What should I do if I can’t afford a car loan?
Get a lower interest rate if you qualify. Higher borrowing costs over time if you extend the loan term. Good or excellent credit may be required to secure a lower rate. Refinancing may come with fees. 2. Renegotiate your loan terms Lenders often allow you to defer a payment when you’re facing financial hardship and can’t afford your car payment.