How to Lower Your Car Payment Without Refinancing

1. Extend the Loan Term

If you're at risk of falling behind on payments, reach out to your lender to discuss your options for avoiding delinquency and default. In some cases, a lender may agree to a loan modification, which may include extending your loan's repayment term and reducing your payment amount.

While this option may provide much-needed relief, it's important to understand the consequences of extending your loan term.

In particular, deferring payments or stretching out your loan's repayment period will result in more total interest charges. Although this may be a worthy trade-off for now, it may be a good idea to consider accelerating your auto loan payments once you're financially ready to do so.

2. Consider Leasing

If you haven't yet purchased a vehicle, consider leasing instead. With a car lease, you're effectively paying for depreciation rather than the vehicle's full value. As such, the monthly payments are typically lower compared to an auto loan.

According to fourth-quarter 2024 data from Experian's State of the Automotive Finance Market report, the average monthly payment for a lease is $600, while the average payment for a new car loan is $742.

That said, leasing can be more expensive in the long run because you'll never own a car outright—in other words, you'll always have a monthly payment. Additionally, leasing companies often impose mileage limitations and maintenance requirements that can be costly if not followed. Take time to compare buying and leasing to determine which is the better fit for you.

Learn more: Is It Better to Lease or Buy a Car?

3. Trade In Your Car for a Less Expensive Car

If you're struggling with payments on a more expensive vehicle, it can make sense to simply trade it in for a cheaper model.

The trade-in process is often convenient because the dealership handles a lot of the paperwork. That said, trading in a financed car may be a little tricky if you owe more than the car is worth.

Depending on the situation, you may need to pay off the negative equity or roll it into your new loan. However, rolling it into the new loan can make your situation worse.

Learn more: How to Trade In a Financed Car

4. Sell Your Car and Buy a Cheaper One

Although trading in your car is often a simple and convenient option, you'll likely get more money if you sell the car to a private buyer instead. Then, you can purchase a cheaper used car and lower your payment amount.

That said, selling a car on your own requires more time and legwork, and you'll have to handle the documentation on your own. Additionally, selling a car with a loan involves communication with your lender, and you likely won't be able to roll negative equity into a new loan.

If you'd like to pursue this option but you're feeling overwhelmed by the process, check your state's department of motor vehicles website to get insights about documentation requirements and other guidance.

Learn more: How to Sell a Car With a Loan

When to Consider Refinancing

While it's possible to reduce your monthly car payment without refinancing, an auto loan refinance may be the right choice in the following situations:

• Your credit is in great shape. With good credit, you might be able to secure a lower interest rate than what you're currently paying. You may also be able to extend your repayment term to lower your payment even further, though you may still face higher interest charges over the life of the loan.
• You want to pay off the loan sooner. If you can afford it, refinancing may allow you to choose a shorter repayment term, making it possible to pay off the debt more quickly.
• You have a lot of equity. If your vehicle's worth far more than your remaining loan balance, a cash-out auto refinance loan can allow you to tap some of that equity and use it for other purposes.
• Other options aren't necessary. If you're not at risk of falling behind on payments or your current loan isn't threatening your financial security, refinancing can help you tweak your loan terms just enough to better suit your needs and goals.

Learn more: When Does It Make Sense to Refinance a Car Loan?

Frequently Asked Questions

Check Your Credit Before Assessing Your Options

Regardless of which approach you're thinking of taking, it's a good idea to review your credit health before making a decision.

Start by getting free access to your Experian credit report and FICO^® Score^☉. These resources can give you a sense of where you stand, helping inform which approach you take. If your credit needs some work, you can also get insights into steps you can take to improve your credit.