Four ways to reduce car payments

If you, like most of us, need to make your income higher, it's helpful to start with a rigorous review of your monthly budget and start with your biggest spending. Transportation costs are the second largest expense for ordinary Americans, second only to housing expenses. On average, we spend more than $9,500 a year on transportation, or nearly $800 a month. Of course, these transportation costs include petrol and repairs, but by far the biggest part of our transportation costs is the cost of buying a car. Since most new cars are purchased with loans, it is a very sensible way to reconsider whether it is possible to reduce car payments by increasing your monthly budget.

Option 1: Refinance, lower your car payments at a lower interest rate

If you have an existing car loan, the quickest way to lower your car payment is to refinance the loan to a better one. On average, you can lower the interest rate by 2.4%. The interest rate you pay, expressed in annual interest rates or in April, is another way to describe the cost of a loan. Why are more of us not considering refinancing car loans? The answer is hidden in front of you. Most of us don't know that we can refinance car loans.

Although 2.4% sounds like a small number, it can save more than $2,200 during the life of your new loan. Nothing to sneeze. The average car loan is about $32,000, with an average duration of about 68 months (or more than five and a half years). Suppose you buy a car and refinance after five months. If the interest rate drops by 2.4%, your car's monthly supply will be reduced by more than $30. Multiply $30 by 64 months and you save a total of $2,304. Now you can use that $2304 to pay off some high-cost credit card debt or vacation. Congratulations!

Option 2: Refinancing, reducing car payments by extending the time limit

For auto loan terms, a shorter loan term means less interest paid during the loan term. However, extending your loan term can reduce your car payments monthly, sometimes significantly. The auto loan market is huge, with over $1 trillion in outstanding loans. This means that the auto loan market involves all types of lending institutions and investors. Therefore, a variety of car loan terms may surprise you. The loan period has been extended to 84 months or more.

Let us give a typical example. Suppose you have a $25,000 principal loan balance and a 50-month auto loan with a 5% interest rate. If you can refinance for 60 months at the same 5% interest rate, your monthly supply will drop from $550 to $470. Save $80 a month on your budget. It is true that during the new 60-month term, you will spend more on interest expenses, but sometimes it makes sense based on your other budget priorities.

Option 3: For your next car purchase, you can save your monthly payment by $136

Most of us have heard that when you drive your shiny new car away, it loses 10% to 20% of its value. Nothing changes except you are now the owner of a used car. Although the rapid depreciation of the value of new cars has irritated new owners, it is good news for used car buyers. Today's cars are more reliable and have a longer life than ever before. All of this means that used cars are a better choice than many of us. This is the best part. The average monthly payment for used cars is about $400, while the average monthly payment for new cars is about $536. The difference of $136 can help.

Option 4: Lower your car payment by down payment

Maybe you did buy too many cars. It was too much trouble to stop the 8-seat car. The leather seats on the luxury chartered car will not impress the children or friends. You can sell your car and buy a more economical model. What makes this choice more interesting and convenient is the proliferation of new online services that will buy your used car, such as carvana. By entering some basic information about your car on these sites, you can get a firm offer quickly. If you agree, these companies will pick up your car at your home and bring a check. You can use the cheque to clear the old car loan and buy a smaller, cheaper car.