The average payment for a new car hovers around $480, which translates into almost $5750 a year. That is a lot of money for anyone, but it can seem like an impossible amount of money for someone who is on a tight budget. If you don't think you can afford that much or if you simply don't want to pay that much for a car every month, there are things you can do to lower your payments. The following are three strategies for lowering your loan payments.
Negotiate a Lower Interest Rate
If you want a lower payment, the best thing you can do is negotiate for a lower interest rate. The interest rate for a car loan can range from just a few percentage points to over 20 percent. If you get an interest rate on the lower end, you can expect to make a smaller monthly payment. If your interest rate is high, you will make a higher payment. For example, a $10,000, 60-month loan on a used car with a 3 percent interest rate runs $180 a month. A 20 percent interest rate will cost you about $265 a month.
Make a Larger Down Payment
If you can, try to make a substantial down payment at the time you purchase your car. Making a down payment will lower the amount of money that you have to finance and will greatly reduce your payments. Making a $2,000 down payment on the above loan at 3 percent interest will lower your payments by almost $40 to $143. The more you can put down, the more you will save. What's more, you will avoid owing more on your car than it is worth, which can cause a lot of headaches if you have an accident or try to trade your car in.
Increase the Loan Terms
Many car loans are for 60 months, meaning you will make a payment each month for 60 months. However, there are loans with longer terms available. If you get a loan for 72 months, you can reduce your payments. The $10,000 loan at 3 percent interest mentioned above only costs about $150 per month at 72 months if you don't make a down payment.
As you can see, there are a lot of factors that influence your car payment. If you want the lowest payment possible, be sure to manipulate all of these factors in your favor.