How to Reduce the Monthly Car Payments You Are Paying
Loans that require a fixed monthly payment can put a strain on your monthly budget. You probably make a monthly payment on your car loan. If you want to reduce your car payment, you have several choices. You can try to refinance the loan to lower the interest rate, or to extend the term of the loan. You may consider selling your car and buying a less expensive vehicle. Instead of buying a car, you might consider leasing.
1. **Determine if your credit rating has improved since you took out your original loan.** Lending institutions, like banks, use credit ratings. The rating is used to evaluate the risk of lending to a particular borrower. The rating may also be referred to as a credit score.

Your credit rating is determined by information reported to credit bureaus. Your lenders (banks and credit card companies) report information to credit bureaus. That information includes data on your loan balances and payment history. The data is used to calculate a credit rating. The higher your rating is, the more likely that you will get approval for your loan.
Experian, Equifax and TransUnion are three main credit bureaus that are frequently used by lenders.

You can get your credit report once a year for free. However, the report does not contain your credit score. This article explains how to check the score itself: Check Your Credit Score.
2. **Review the information on the credit report to verify that it is correct.** Say, for example, that your credit card company reported a late payment. You actually made the payment on time.

Ask the bureau what documentation they need to correct your credit report.
Contact the lender who reported the incorrect data. In this example, your bank statements would prove that you made the payment on time. The date of the payment will be posted in your bank activity. Ask the credit card company to correct the information reported to the credit bureau. Keep documentation of that correction.
Ask your lender what credit rating they used when your loan was approved. That rating may be in your loan documents. Compare that rating to your current credit rating. If you rating has improved, you may be able to refinance your loan.
3. **Take action to improve your credit rating.** If your credit rating has not improved, wait to apply for refinancing. If you don't have a higher rating, you may not get your refinancing approved. Instead, make the effort to improve your credit rating.

Continue to use credit. Using credit wisely proves to a lender that you're a reliable borrower who will pay on time. For example, you should use credit cards for some of your purchases.
Make payments on time. It's critical that you pay every debt on time. The timely payments will build your credit history.
Lenders are not obligated to report all credit transactions to credit bureaus. As you use debt responsibly, make sure the information is reported to credit bureaus. Ask your lender to report the data. Review your credit bureau information to make sure the information was posted.
4. **Apply for a refinanced loan.** In addition to your personal credit rating, another big factor in your loan is the interest rate. If interest rates have declined, you are more likely to refinance your loan at a lower interest rate. On the other hand, if interest rates have increased, you may not be able to lower your car payments by refinancing. Regardless of your credit rating, higher rates may eliminate refinancing as an option.

The loan balance you are refinancing needs to be less than the current value of your car. Remember that the car serves as collateral for the loan. If you defaulted on your loan, the lender would take ownership of the vehicle. If the loan balance is higher than the value of the car, the lender would lose money when they sell the car.
Approach several lenders about applying for a refinanced loan. You may be able to lower your interest rate if you check with more than one lender.
Your credit rating is impacted by the number of times you access your credit report. A credit rating is also affected each time you apply for a loan. Keep this in mind as you work on refinancing. Your lender can help you limit this activity.
5. **Pay down some of your loan's principal.** If you pay off some of your loan balance, your total interest costs will decline. You may be able to get a smaller monthly payment, even if interest rates are the same. When you pay down your principal, you can contact your lender about restructuring the loan.

Assume that you have a $10,000 car loan and an 8% interest rate. Your loan has 4 years remaining.
You decide to pay down $2,000 of the $10,000 balance. You ask your lender if the monthly payments can be reduced, since your new loan balance is only $8,000.
Even if your interest rate remains at 8%, your monthly loan payments may be lower.
6. **Consolidate your car loan with other debts.** You may be able to refinance a group of loans with new loan terms. Your monthly payment on one larger loan may be lower after consolidating several smaller loans.

Meet with a lender to talk through the pros and cons of a consolidation loan. A consolidation can help you lower the interest rate on your debts. However, you need to consider the risks of a variable rate loan, or extending the term of a loan.

Say that you have a $10,000 car loan at 8%. You also have three credit card balances totaling $6,000. The average interest rate on your three cards is 12%.
Two factors may lower your interest rate on these loans. If interest rates have declined, or if your credit rating has improved, you may be able to lower the interest rate for these consolidated debts.
Having one consolidated payment to make each month also simplifies things for you. When you create your monthly budget, you don't need to account for so many payments.
7. **Sell your car** A good way to reduce your payments is to make payments on a cheaper car. This is another way to reduce your payment, even if interest rates have not declined.

The car you sell must be worth more than the loan balance. If not, you may need to pay for the difference out of your own pocket.
Assume that your loan is for $9,500, and your car is worth $10,000. When you sell your car, you can use the $500 profit as a down payment on a $6,500 car.
The $6,000 loan balance reduces your required monthly car payment.
8. **Lease a car.** Using a lease means that you are making payments to essentially rent a car for a certain time period. You do not own the car at the end of the lease. The lender may give you the option of buying the car at a specific price.

Assume that you lease a $20,000 car for 4 years.
The lease payment will be based on an amount less than the car's total value. Say, for example, that the payments total $15,000. Since the lease payment total is less than the total value of the car, your monthly payments are smaller.
At the end of the lease, the car will have some remaining market value. You may have the option to buy the car. If you don't buy it, the lender may sell the car to someone else.
9. **Use other sources of transportation.** If you move to an area with a good bus, train or subway system, you may decide not to use a car. You can use the money you would normally spend on a car for some other purpose.

Make a judgment about your access to public transportation. Think about how long it takes to get to your subway system, for example. Consider how much longer it will take you to travel.
If you do own a car in a city, you should consider the costs you'll incur to park your vehicle. That cost can be expensive in a big city.
A growing number of cities are expanding bike paths. You may be able to use a bike for some of your travel.
10. **Take out a home equity loan.** If the appraised value of your home is more than your home loan balance, you have home equity. You may be able to take out a home equity loan and use the loan proceeds to buy a car.

Assume that your house is valued at $200,000. Your home loan balance is $160,000.
Contact your home lender to get a quote for a home equity loan. Assume that you can borrow at a 6% rate for 5 years.
You decide to borrow $20,000 at the 6% interest rate to buy a car. You make payments on your home equity loan.
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