Car payments for many Americans are now in excess of $1,000 per month. Here’s how to get ahead of your loan payment

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For many Americans, car payments are a fact of life. The average cost of a new car is close to $50,000, a record. Combined with higher interest rates, monthly auto loan payments for American drivers are now over $1,000 per month. With loan payments also reaching all-time highs, it can be easy to cross the line and get caught up in a never-ending cycle of debt. Here’s how to get ahead of your auto loan payment and save money every month.

Understand your financing options before you buy

Before you sign on the dotted line, it’s worth researching the best auto financing options available for your car purchase. Take a moment to understand the different types of loans and their associated terms before deciding which one is best for you. Consider factors such as the interest rate, loan term, and other fees that could add up over time.

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Plus: Prequalify for a personal loan without affecting your credit score

Before you step foot on a car lot, make sure you’re pre-qualified. Loans from banks or credit unions are often cheaper than loans from a dealer. Knowing what type of loan works best for you can help you save hundreds or even thousands of dollars over the life of your loan. If you’re buying an electric car, do your research to find EV tax credits and other possible benefits.

Keep your car longer to avoid buying right now

One of the main reasons car prices have skyrocketed in recent years is due to supply chain issues, microchip shortages, and pent-up demand. In addition, following the Federal Reserve’s rate hikes (which indirectly affect consumer lending rates), the average interest rate on auto loans rose 2.8 percentage points to 10.6%. This increase means that car buyers are paying 8% more in new car payments due to increased interest alone. Depending on your personal finances and needs, it may be best to wait until next year to purchase a vehicle. Interest rates should eventually come back down and supply chain problems should level off, which would drive down the price of cars.

Refinance your loan

Interest rates are much higher than a year ago. If you currently have a loan with a high interest rate, shop around to see if you can refinance and get a lower interest loan. It may take some time before rates drop, so it’s important to constantly do your research. Also, if your high interest rate is due to a low credit score, take steps to improve it, as well as your overall financial situation.

Refinancing can help lower your interest rate, which could save you money in interest charges in the long run. Just be sure to do all the necessary research, including understanding any additional costs that may be associated with refinancing, before making any decisions about refinancing your loan.

Make lump sum payments when possible

Making lump sum payments whenever you can is one way to pay off your car loan faster and save money on interest charges over time. If there’s ever extra cash available in your budget (like a tax return or a bonus at work), it may help to make a one-time payment toward the principal balance instead of just adding it to regular monthly payments (which in your most would go towards interest). This allows you to pay off the principal faster and get out of debt sooner than expected.

change your car

Consider selling or trading your car for a lower priced one. On the plus side, you may be able to get a higher price by selling or trading in your used vehicle now. This can help offset the cost of a new car. You’ll usually get a higher price when you sell it to a private buyer, but it may be easier to trade your car in at a dealer. Do your research to find the best price for your car.

Expand your search parameters

Consider expanding your search parameters. You may have to compromise on your wish list until the car you want becomes more affordable. You can expand the geographic area you’re looking in, search for a smaller older car, or target a car with fewer features. You may be able to find a car that meets your needs at a lower price.

Do you really need a car?

Ask yourself if you really need a car. If your family has two cars, can you switch to one? Can you get to work by public transport, carpooling or bicycle? Look into alternative transportation options so you can avoid paying for a car altogether. Selling your car can save you money on gas, insurance, maintenance, and other costs like annual registration fees.

Keeping up with high car payments each month can be difficult, especially when combined with other expenses like rent and utilities. But by understanding your financing options before you buy a vehicle and taking advantage of opportunities like refinancing or making balloon payments when possible, you can control your debt and save money each month on your car payment.

And remember, this is just the cost of the loan. There are other costs associated with owning a car, such as car insurance, gas, and maintenance. When you’re considering buying a car, be sure to factor in all of these costs so you can make an informed decision. With smart planning and careful budgeting, getting ahead of your car payments doesn’t have to seem daunting or impossible.

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