Rateworks auto loan refinance
November 11, 2021

How to Lower My Monthly Car Loan Payment

Find out how to determine an affordable car loan payment without having to put your credit score at risk.

Graphic of a car and loan exchanging between hands
Written by

Jennifer Moore

There’s no perfect formula for answering either question. But there are several factors to consider that can help you make a smart and responsible decision.

Here’s a great place to start:

1. Don’t consider a vehicle with a price tag at the top of your budget

2. Decide early on if you want to purchase or lease

3. Keep an eye on fluctuating interest rates

4. Know there’s more to affording a vehicle than just your monthly payment

NerdWallet offers some great advice. As a rule of thumb, NerdWallet and other financial experts say vehicle owners should spend no more than 10% of their take-home pay on a loan payment — and no more than 20% for total vehicle expenses such as gas, insurance, repairs, and maintenance.

That means — even if auto costs rise — the 10% guideline should still apply. It also means that the SUV you wanted last year may not be the same one you can afford this year. Or, it may have many more miles displayed on the odometer.

For the sake of example, let’s say you’ve done the math and $250 is the monthly car payment you can afford.

Graphic of a car refinanced with RateWorks

Here are your next steps:

Trade-in or down payment?

Either or both will lower the amount of the loan you’ll need. Decide what works best for you.

Determine your loan

Experts recommend a maximum loan term of 36 months for used cars and 60 months for new cars. So it's back to math using your monthly payment example of $250. Now you can calculate the car loan you can afford — but don’t forget to account for sales tax and registration fees.

Find a finance partner

Your loan depends on several factors — your credit score, the cost of borrowing, your loan term, and the current interest rate. New car loans often have lower rates (or annual percentage rates). All this may determine if you can secure your loan from a bank, car dealer, credit union, or other lending institution.

Start shopping

Now that you have a sense of your loan amount, terms, and monthly payments, you can hunt for the vehicle you can afford. If you choose a used car over new, you have many more options. Popular automotive websites — such as autotrader.com, cars.com and kbb.com — offer great filtering tools that allow you to search by make, model, mileage, and price. Local sites — such as Craigslist and FaceBook Marketplace — are also great resources. It’s also possible, after you’ve done your homework, you may decide that keeping your current vehicle is the best solution for your financial situation. And if so, you now have another option. RateWorks offers a great way to extend ownership of your current ride while saving you money. We can evaluate your current loan, the rate you’re paying, and the payments you make every month. In minutes, RateWorks can create a new loan that hits your target payment and frees up cash for your other financial needs.

Whether you buy new, buy used, or refinance your current vehicle, we’re here to help. Learn more today. Call RateWorks at 855-925-1647.