How to Lower Your Car Payment

Need to lower your car payment? You're not alone.

A perfect storm of stubbornly high interest rates, high transaction prices and fewer zero percent finance deals has stretched most new-car shoppers thin. To compensate, shoppers are taking on record loan terms at record rates, with 20% of new-car buyers opting for monthly car payments in excess of $1,000, according to recent Edmunds data.

Shoppers are willing to borrow more for a bigger vehicle or the latest and greatest features and technology, with the average transaction price remaining well above $47,000. While this is good news for automakers, dealerships and lenders, it is bad news for many car owners. The average car loan in the second quarter of 2025 was $42,388, up from $40,873 in 2024.

Borrowing more money over longer periods means many car owners owe money on their cars even when they decide to be done with them. Being "upside down" or "underwater" on a car loan is getting worse. Through May 2025, more than 26% of borrowers owed more than their cars were worth when they traded them in. That negative equity averaged out to $6,778.80, according to Edmunds' data. During the same period in 2024, the amount was $6,168.40. In 2023, it was $5,502. The number of underwater owners was about 17%.

There are several options to consider if you find yourself in the midst of this financial storm.

Do not miss a car payment
Renegotiate a longer loan term with your lender
Make extra payments
Refinance your car
Sell or trade in your car
Sell your car and lease another one

Do not miss a car payment

Missing even one payment can result in a ding to your credit score and start the process of a repossession. In some cases, lenders wouldn't go to the expense of taking your car back, then reselling it, as well as incurring lost interest income from a repo, after a month or two. But don't count on this, as the banks take these on a case-by-case basis. It's best to be cautious and make even a partial payment to show the lender you're still invested in the car payment and your wheels.

Related article: How Many Car Payments Can You Miss Before Repo?

Renegotiate a longer loan term with your lender

Because repossession is a losing scenario for most everyone involved, a lender may be willing to renegotiate the terms of your loan as long as you inform them that you're having or may have trouble making payments.

The lender may introduce what's known as forbearance, where the lender and borrower agree to temporarily lower the payment or possibly skip it for a month or two. Such a deferral extends the loan and its payment amounts, however.

Another common renegotiation tactic is to extend the loan term, which is how many months the loan is set for repayment. Edmunds recommends a 60-month loan, but 84-month loans are becoming more common. You'll pay more in total, and it'll take longer, but if money is tight just for the time being, you can offset it when the cash starts flowing.

Related article: How Long Should a Car Loan Be?

Make extra payments

This might sound unlikely now, but the most direct solution to lower your car payment over time is to make extra payments now, or whenever you can. Ideally, buck the trend and make a more substantial downpayment at the outset, even if it seems insignificant. Making even a one-time payment will lower the total interest or possibly the principal. Shortening the life of the loan saves you money in total.

Refinance your car

The least invasive action and the one to keep you in your car is to refinance the loan on your car. Rates change as do credit scores, and a history of on-time payments and other positive financial proof can improve your credit score and lower the interest rate. A borrower with a Fair credit rating between 640 and 699 is estimated to incur an interest rate of 12.51%, whereas a borrower with an Excellent credit rating of 750 or above pays nearly half that, with an estimated interest rate of 6.99%, according to Edmunds' auto loan calculator.

Timing also could have been against you. If you took out a car loan between 2022 and 2024, when interest rates peaked at 7.3% for a new car loan, you could benefit from a lower interest rate now.

You could probably find better loan terms from your local bank, credit union or other lender. Apply to several refinance lenders, then compare the rates to lock in the best deal. Some early preapprovals before you fill out all your details should be able to give you an estimated annual percentage rate, which won't count as a hit on your credit. To get competitive refinance offers, you'll need to provide the VIN and other vehicle info, as well as the terms of your current loan.

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Sell or trade in your car

If you're not emotionally attached to your car, it might be time to sell or trade it in for a less expensive car and secure a loan with more manageable monthly payments. First, see what your current car is worth by using an online appraisal. Then contact your lender to assess the payoff amount on your loan, which is how much you still owe. In the case of negative equity, or being "underwater" on your loan, you would assume that negative equity on the subsequent loan, if a lender approves. It's not advised, because then you're paying interest on your debt in addition to the interest on the next car. You can try to sell your car at a dealer, to a private party, or through a used car retailer such as CarMax. The proceeds can be used to pay off the loan and start over.

Trading in your car presents a more negotiable tactic than just selling it outright. A dealer might be more willing to give fair market value for a trade-in if you intend to buy a replacement car from them. Again, knowledge is power. Use third-party appraisal guides to compare your car's value with whatever the dealer may offer. Then restart the car buying process with everything you know now.

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Sell your car and lease another one

Similar to trading in your car for a less expensive one, leasing a car may result in lower monthly payments than your current loan. The average lease payment last year was $578 versus the average new car loan payment of $740 in 2024. Most leases are for new cars, but some dealers will also lease you a used car. Note that if you owe more money on your existing car than it is worth, jumping into a new lease will have the opposite effect and increase your monthly payments since the remaining balance on the original car needs to be factored into the lease.

A lease has finite terms, usually two to three years and for a certain number of miles per year, then the car goes back to the dealer. The language might sound complicated, but once you know the basics, leasing a car is relatively straightforward. Also, certain slow-selling vehicles have excellent lease terms right now at less than $200 per month, with less than $4,000 down. Check out the best lease deals here.

Final note

It's important to know that in most cases, you cannot easily cancel a car loan you don't like the terms of. The best way to avoid any of these scenarios is to be patient when initially car shopping and do your research. A little time spent now could save you a lot of money later.