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Auto Refinance

AUG 09, 2022

Need to save money? See how to decrease your car payments

Check to see how you can decrease your monthly car payment and options to lower the cost.



9 min read

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The thing about money is that it doesn't matter how much you have. You still need to budget, spend your dollars wisely, and cut expenses when necessary. Depending on the type of car you have, your monthly car payment can be a big drain on your wallet, but thankfully, there are several ways to try to reduce this monthly expense. If you’re looking to cut your car payments, here’s what you need to know.

Your car loan payment

When it comes to buying a car, many people choose to finance their purchases instead of buying them outright. You’ll take out a loan from a lender in order to purchase your car and make monthly car payments until the outstanding amount has been paid off. This means that you won’t actually own your car until you’ve paid off all of your loan.

While financing your car purchase can seem like the most affordable and convenient way to buy your car, there may come a time where you might want to reduce the amount you’re paying every month. For example, a change in your personal circumstances can mean that you need to drastically cut down your monthly car payment amount so you can allocate those funds to other budgeted areas. Here’s how you can do just that.

Ways to cut your car payment

There are four main ways that you can work towards reducing your monthly car payment. Whether you have an auto loan or are researching ways to save, you can apply the below information. First,  you can start by looking at a vehicle’s equity if you are researching savings options ahead of financing. Next, you can try refinancing and changing your loan add-ons if you already have an auto loan. Lastly, you can look at swapping vehicles if the other methods won’t really help you that much.

Need more money in your car budget?

See if refinancing your car loan will help! Check to see if you can put cash back in your wallet. On average, Caribou customers save $115+ a month*.

Your vehicle’s value

If you are shopping for a car to finance, you will want to make the most of the vehicle’s value, or equity. Your car payments will vary depending on the value of the vehicle you purchase. A small, two-door economy coupe that is a little older with a few thousand miles on the odometer will be substantially more affordable than a brand-new, semi-luxury sedan. When it comes to buying a new car, ask yourself exactly what specs you’re looking for and why. Newer models might be more appealing, but they might not necessarily be the right fit for your budget when it comes to your monthly premiums.

Going for a less expensive option will mean that your car payments will be lower from the get-go. And, after a couple of years on your existing plan, you may even be able to refinance your loan to potentially take advantage of a more attractive interest rate or APR. This final outcome makes your less expensive vehicle choice an even more affordable budget option.

However, buying a smaller, economy vehicle or finding a car under market value so you can take advantage of the equity might not always be an option. If you’ve gone with a more expensive car and overbought the market price, there may be less opportunity to save by refinancing. If you need to seriously cut your car expenses, you might need to sell your model altogether and go with a cheaper vehicle option.

Making the down payment

Make a significant down payment toward the vehicle purchase if you can. A down payment of 10% or more helps to lower the amount you owe and need to finance. This can lower your monthly payment on the vehicle since you are borrowing less and have less to pay off over the term of the loan.

Saving on your current car loan

The second way to cut your car payments involves refinancing. This is one of the most popular ways to save some money since you can refinance your existing loan as you pay it down and it matures. The cars we drive everyday are depreciating assets. This means our cars start to lose value after their purchase which decreases their equity. However, you are also making payments against the total value of the loan which decreases the amount owed. The key takeaway here is that you can save money if your vehicle’s value is above the balance of the loan. Ready to get started? Start your refinance application now.

Refinancing your existing car loan helps you take advantage of this positive equity to potentially get a lower car payment. One way you can save is by choosing a longer term refinanced loan which means you’ll be making payments for longer, but with much smaller monthly premiums. This savings method does lead to accruing slightly more interest over the longer term with the immediate benefit of savings now. Similarly, you should also pay close attention to the interest rates of your loan.

Your car loan interest rate

When it comes to your interest rate, getting a lower rate through refinancing is obviously better for lowering how much you pay. You are already paying thousands of dollars to pay back the loan, and the last thing you want to do is pay back more money on top in interest you could have otherwise saved. But, that’s exactly what you could be doing if you don’t pay attention and try to optimize your interest rate.

The exact rate that you’re charged will vary depending on things like your credit history, personal financial background, and the price of the car you’re buying. While you won’t be able to change a lot of the factors behind your interest rate, there are some things you could do.

On a personal level, it’s always a good idea to make sure your credit score is as good as it can be by limiting your liabilities and debt before trying to finance your car. While there is always the option of being able to refinance further down the line if your credit rating improves, starting with a lower rate during the initial financing can help you save more sooner by giving you a more affordable interest rate.

When it comes to finding the right car loan for you, Caribou can save you time and money. Compare personalized refinancing offers on our lending marketplace.

Review expensive loan add-ons

The third way to save involves checking your loan add-ons. Car loans cover the essential funding you need to buy your car, but they also can contain non-essential products like guaranteed asset protection, or GAP, and service plans. Review how much you are paying for these add-ons to make sure you are not over paying for unnecessary and expensive products you may not need.

One of the most expensive add-ons are dealer service plans. These plans provide vehicle maintenance coverage which you may or may not use. However, the dealer doesn’t usually tell you these plans are refundable and canceling them gives you cashback. Depending on the original cost of the service plan, you may be able to get a refund for thousands of dollars upon plan termination which can really help if you are looking for additional ways to save on your car loan.

When refinancing, you also have the option to add a vehicle service contract to your car loan. These types of contracts can replace dealer service plans to give you peace of mind for a few dollars a month rather than an upfront payment of thousands like the plans you may have been offered at the dealership.

Also review other common forms of add-ons such as extended warranty(ies), wheel and tire coverage, chip and dent protection, and paint protection. Make sure these loan additions make sense and you know the value these extra protections provide. Remember that the best way to keep your car loan costs down is to avoid expensive add-ons where possible and only keep useful add-ons and valuable coverage.

Many of these add-ons can be dropped if you decide you do not need them, with some providing refunds for prepaid unused portions of the plans. During the refinance process, ask your loan officer for specifics about cancellation benefits.

Have car loan add-ons?

When refinancing, ask your loan officer if you have expensive loan add-ons. You may be able to cancel plans you paid for a head of time for a refund.

Alternative vehicle ownership options

The fourth way to decrease your car payment is to look at your vehicle ownership situation. It’s worth asking if owning a financed car is the right thing for you at this time. Depending on how much you’re planning on using a car, you might actually find trying to pay off your car loan sooner is better or decide only having one car versus two cars is best. In extreme budgeting situations, you can even sell your car and find it more financially viable to use other forms of transportation.

The ultimate way to cut costs is to consider alternatives to financed car ownership. If you have a vehicle that is taking up too much of your monthly income, ask yourself if you can pay it off sooner than later using other assets so you have a debt-free vehicle. Maybe you have some stocks you could sell off, use a portion of your savings, or ask a family member for a loan.

You could also consider selling your car if you have multiple vehicles. Many families are switching to a single car lifestyle with people taking advantage of work from home options and not needing multiple vehicles to commute to work on a daily basis. This can give you one less car payment to keep up with and more room to budget for other expenses.

Avoid defaulting on your car loan or skipping payments whenever possible. Defaulting can end up damaging your credit and causing you a lot of anxiety and stress. If your car payments aren’t working for you, it simply might be time to ditch the car. Selling the car is a much better solution than defaulting if you can and absolutely have to.

Vehicle sharing programs

Finally, using your vehicle for car loaning, ridesharing, or carpooling programs is another way that you can try to make additional money with your car while serving the transportation needs of others. While this point isn’t exactly about saving money, it is still worth mentioning. Car loaning uses programs like Zipcar which connects your car to someone who needs to use one for a short period of time. They pick your car up, drive it, and then return it to the same spot while paying you a fee — putting more money back into your car budget.

Ridesharing and carpooling similarly provide additional money for your car budget. If you commute to a location every day and there are others who share the same route, you may be able to arrange a rideshare where passengers pay you a fee to ride along with you. Making a few extra dollars a month to help with your vehicle expenses can be just as good as saving a few dollars.

Putting savings into practice

So, as you can see, there are ways you can save money on your car loan and potentially decrease your payment. Whether you’re looking to refinance your car, checking your expensive loan add-ons, or finding an alternative way of getting around, there are several different ways you can try to keep your car repayments low. But which is the right one for you? It all depends on which things you put into practice and how you align your budget. Create a plan, and you will be working your way to savings soon.

Payment savings FAQs

  • How can I decrease my car payment? You can often save money on your car payment by refinancing your loan to lower your interest rate and changing your loan add-ons.

  • What is equity in a car? A car’s equity is the value of the vehicle that you own. It is related to the amount of money you have already paid into your car loan or the amount you paid off.

  • How much should a car’s down payment be? Make a significant down payment of at least 10% or more toward your car purchase. This helps to lower the amount you will owe and need to finance.

  • What are car loan add-ons? Common add-ons include extended warranties, wheel and tire coverage, chip and dent protection, and paint protection. Many of these add-ons can be canceled if you decide you do not need them.

  • Can I cancel car loan add-ons? Yes, add-ons like extended warranties can often be canceled with some providing refunds for prepaid unused portions of the plans.

Continue reading

Learn how to save money at the pump

See how to save up for a car with a vehicle budget

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Through Caribou, you could start saving today!

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Contact Details
NMLS #1746612

Mon - Fri: 9am - 8pm EST

Sat - Sun: 9am - 4pm EST

1717 Rhode Island Ave, NW, Suite 500 Washington, DC 20036

* This information is estimated based on consumers whose auto refinance loan funded through Caribou between 11/1/2022 and 9/1/2023, and had an existing auto loan on their credit report. These borrowers saved an average of $115.58 per month. Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.

+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

++ Social security number is required should you choose to move forward in the loan application process.

** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. APR ranges from 5.99% to 28.55% and is determined at the time of application. Lowest APR is available for a 36 month term, to borrowers with excellent credit. Conditions apply. Advertised rates and fees are valid as of 11/16/23 and are subject to change without notice.

Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Offers not available in MD, MS, NE, NV, WV.