The easiest way to finance a new or used car is by taking out an auto loan. However, car payments can reach several thousand dollars per month, putting a strain on your monthly budget. This is especially true if you took a loan with bad credit or if your loan came with high-interest rates.
That’s why shopping around and comparing different car loan quotes is crucial to ensure you find the best deal on financing your car purchase. Auto loans in San Antonio come with low, competitive rates and flexible terms, enabling you to repay your loan sooner. However, if you’re struggling to make your monthly payments, there are several ways you can make your loan more manageable. Here are a few proven ways to reduce the cost of your auto loan, so you can pay it off early:
1. Renegotiate Your Auto Loan
If you’re facing financial hardship that’s making you unable to make your loan payments, consider renegotiating your loan terms with your lender. Your lender could devise a short-term plan to help take the pressure off for several months before you get your finances in order. One way you can do that is by requesting a modification of your auto loan from your lender.
If approved, this could help extend your loan term such that your loan is spread out over an extended period of time, lowering your monthly payments. Your lender may also be willing to reduce your interest rates for a specific period of time. However, most lenders only approve loan modification requests from individuals with good credit.
2. Refinance Your Car Loan
Another effective way to lower your monthly payments is by refinancing your car loan. Refinancing involves taking out a new loan with more favorable terms and using the money to pay off your current auto loan. It’s usually the best option if your credit scores have increased since you took out the loan or interest rates have reduced significantly.
Refinancing can help you get a lower interest rate on your loan, meaning you pay less each month. It can also help extend your loan term, prolong your repayment period, and reduce your monthly payments. However, stretching your repayment period means your loan accrues more interest over time.
3. Make Extra Payments When Possible
While you might not consider it cost-saving at first, making extra payments on your loan can help lower your monthly payments in the future. Any time you can, make lump sum payments on your car loan above the required minimum monthly payment to cut down your budget. You can use the extra money from a pay raise, tax refunds, and bonuses to make a huge lump sum payment on your car loan. Ensure the extra payment goes directly to the principal amount to reduce the total balance, helping lower your monthly payments and interest amount charged.
Typically, your auto loan payments should take no more than 25 percent of your monthly budget. This makes cutting your payment down as much as possible incredibly crucial. And like you’ve seen, there are many ways to reduce your car payments. If your car loan carries a high interest, consider renegotiating your loan terms or refinancing to lower your monthly payments.
However, the best way to save money on your car payments is by building up your down payment before you start shopping for a car, whether you want a new or used vehicle. If you can’t afford the car you bought with a loan, you should consider selling or trading it in for an inexpensive car. This way, the new payments can be more affordable for your budget.