How Can I Get a Low Car Payment?

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During the first quarter of 2019, the average car payment in the U.S. was $554 for new cars and $391 for used cars, according to Experian data. That's a whole lot of cash to be dropping every month on a car that depreciates in value. The good news is that you don't have to settle for a high car payment.

There are a variety of ways you can get a low car payment and save a great deal of money down the road. Below, we'll discuss some techniques that can help you save on your car so you'll have more money to set aside for financial goals, invest and get ahead financially.

Know and Improve Your Credit Score

Before you even step foot into a dealership and shop for a car, find out your credit score. If your credit score is below 650, you may be stuck with a high interest rate of 10% or more. This type of interest rate can leave you with high car payments and increase the overall cost of your car.

Fortunately, you can improve your credit score and increase your chances of landing a lower interest rate. Pay your bills on time, keep your credit accounts open, pay down outstanding credit card balances and avoid taking out other loans to help improve your score.

Once you've improved your credit score, you'll likely be able to secure a much lower interest rate. Believe it or not, dealers often treat their customers with excellent credit scores of 750 or higher to interest rates of 2.9%, 1.9% or even 0%.

Compare Auto Loans

Instead of going with the first car loan you find, take the time to shop around and compare all the options available to you. If you are already a customer at a bank or credit union, reach out to them and determine what type of car loan they can offer you. After they've provided you with a rate and term, go to your dealer and find out if they can beat the financing deal you already have.

Since your credit score is likely to go down every time you apply for a car loan, complete all of your car loan applications within a two-week period. This way, they'll only count as one inquiry on your credit report and won't have too much of a negative impact on your score.

Make a Bigger Down Payment

A down payment isn't required to finance a car. In fact, many dealers often advertise "0% down payment required." The truth is that while you can get a car loan without a down payment, your monthly payments will be much higher because you'll be financing the entire car.

While putting 20% down is ideal, this may not be possible, so just focus on saving as much as you can for your down payment. In addition to lower car payments, a higher down payment may give you negotiating power on the price and interest rate of your car loan.

Choose a Less Expensive Car

Although it's tempting to go for the brand-new luxury SUV with all the bells and whistles, going this route can leave you with a very high payment. If your goal is to have a low car payment, choose a less expensive car. This may mean forgoing features like leather seats and a sunroof, opting for an older model, or buying used instead of new.

Try Avoiding Longer Term Loans

One of the most common mistakes borrowers make when trying to get a low car payment is agreeing to longer term loans. While an 84-month car loan may come with lower payments than a 36-month car loan, you'll pay far more in interest and significantly increase the overall cost of your car. Plus, do you really want to owe money on your car for seven years? The shorter your car loan term is, the less you'll pay in interest and the faster you'll own 100% of your car.

Consider Leasing a Car

Leasing a car can help you lower your car payment. Here's how a car lease works: You'll make monthly payments during the term of your lease. Once the term is over, you can return the car, buy it, extend the lease or trade it in for a new lease. Since you'll only be paying for the time you'll be driving the car, you can enjoy far lower monthly payments with a lease.

In addition to lower monthly payments, a lease offers fewer repair expenses because most maintenance and repairs will be covered by your warranty. A lease can also give you the chance to save money on sales tax and drive a new or luxury car that you may not be able to afford otherwise.

One of the greatest drawbacks of a lease is that it limits how much you can drive. While you can drive a car that you buy as frequently as you like, a lease will typically restrict you to 10,000 or 12,000 miles a year. A lease can also be more expensive in the long run because you'll always be making a car payment and won't have any positive equity that you can use toward your next car.

The Bottom Line

A high car payment can make it difficult for you to meet other financial goals like saving for retirement or funding your child's college. Fortunately, with a bit of planning and strategy, you can land a low car payment, increase your monthly cash flow and improve your financial situation.