Get Started
Talk to our team to start saving 800.260.5355
Sometimes, a car payment that once seemed affordable simply becomes too expensive. Perhaps you lost your job, or your hours were cut back. You may have new costs to worry about, or other bills that have gone up. It’s stressful when you can’t keep up with your expenses, and it makes sense to look for ways you can cut back.
If you’ve been thinking, “My car payment is too high...What can I do?” we have some solutions that may help. Read on to learn how to lower your monthly auto loan payment and find the best strategy for your situation.
While it depends on your budget and lifestyle, a common rule of thumb is that your car payment shouldn’t be more than 10% to 15% of your monthly income.
Here’s an example. Suppose you make $5,000 per month ($60,000 per year). According to this guideline, your car payment shouldn’t be more than $750 per month (5,000 x 0.15 = 750). A $500 payment would be 10% of your monthly income.
If you earn $3,000, then your monthly payment should be no more than $450 (3,000 x 0.15 = 450). If you earn $10,000, then it should be no more than $1,500 (10,000 x 0.15 = 1,500).
The right car payment for you also depends on your other bills and debts. If your mortgage or rent is very high, for example, then that’ll leave less money in your budget for your car payment.
If you’ve done the math above and now need to know how to get out of a high car payment, take a look at the methods below.
One of the most common ways to change your car payment is by refinancing your auto loan. Auto refinancing pays off your old car loan and replaces it with a new loan with different terms. For example, you might qualify for a lower interest rate which could decrease the total cost of your loan. You could refinance to spread your payments over more years than your old loan, lowering your monthly payments but increasing the total costs of the loan.
If you need a lower monthly payment because your financial situation has worsened or your credit score has dropped since you took out your loan, it could affect your ability to qualify for refinancing. You might need to add a co-signer to improve your terms.
You may be able to sell your car to get the cash you need to pay off your loan and get out of your monthly payments. Browse some car valuation tools to get an idea of how much your car is worth and compare that to how much you have left to pay on your loan.
If you still need a car to get around, you may be able to trade in your car for a less expensive vehicle. The dealer will apply the value of your current car to the price of the new car, which could save you money on your monthly payments.
If you’re struggling to make your payments, it’s always a good idea to talk to your lender. Let them know your car payment is too high and ask what you can do.
Some lenders may be willing to do a car loan modification, which is where you keep the same loan but with new payment terms. That might be what you need to afford to keep your car. They might also offer a deferment, which is where you delay making payments for a short while until you get back on your feet. They’ll add those payments to the end of your loan so the overall amount paid is the same.
Your lender will typically require documentation, such as a financial hardship letter, to verify the need for loan modification.
If your car payment is too high, it’s important to do something about it sooner rather than later. You may be able to avoid late fees and more serious problems if you act quickly. If you fall behind on payments, you risk damaging your credit. Fall too far behind, and the lender could even repossess your car.
What you can do about car payments that are too high is to talk to your lender so they know what’s going on. Find out exactly how much you still owe on your loan, and what the car is worth now. You might be able to get out of debt by selling or refinancing your car. If you need to keep the car and just lower your payments, car refinancing may be the best choice.
Adding a co-signer could help you qualify for better terms on a new loan, but they will also be held responsible for paying back the loan.
Below are some frequently asked questions about what to do when your car payments are too high.
You have several options: Sell it, trade it in for a cheaper car, refinance the loan, or ask the lender to work with you on a loan modification. The best option will depend on the value of the car, how much you have left on the loan and whether you can qualify for a refinance.
You may be able to lower your car payment by refinancing your auto loan to one with a lower interest rate or longer loan terms. Some lenders may work with you to modify the loan or temporarily pause payments if you’re experiencing financial hardship, such as a job loss.
When your car payment is too high and you can no longer afford it, you should take action right away. Do what you can to avoid missing payments. You might be able to refinance the loan, or it could be in your best interest to sell the car or trade it in.
Trading in your car shouldn’t affect your credit. However, if you still have a balance remaining on the loan after the trade, and you don’t pay it off, that could hurt your credit. Applying for a new loan could also temporarily impact your score.
Learn what a car note is, including its payment structure and significance in vehicle financing. Discover what a car note is.
