By RONALD MONTOYA
New- and used-car monthly payments reached a record high in the first half of 2019, according to Edmunds transaction data. The average new-car monthly payment in the first half of 2019 was $556, which marks a 20 percent increase since 2008. Used-car payments also remained high, averaging $409 a month.
“Consumers are racking up higher monthly payments as their purchases are leaning more toward SUVs and trucks,” said Ivan Drury, senior manager of insights for Edmunds. “They’re also increasingly selecting expensive options and higher trim levels, and that’s a recipe for ever-increasing monthly payments,” he added.
While payments have been trending upward for most shoppers, it doesn’t mean the same is in store for you. With a little research and savvy shopping, it’s possible to find a new vehicle without overspending and lower your monthly payments in the process. Or if you’re already stuck with a high monthly payment, we have a couple of solutions.
Purchase a used vehicle instead
Buying a used vehicle is the most cost-effective way to own a car and lower your payments. Used vehicles have already depreciated and are generally less expensive than their new equivalents. In June, the average loan was $10,643 lower for used vehicles than for new. If you shop for a model between 2 and 4 years old, you are likelier to find certified pre-owned vehicles. These certified vehicles have a strong warranty plus a number of other benefits.
Downsize your vehicle or its options
If you want to stick with a new vehicle, your best bet is to either choose a lower-priced trim level or a smaller model. For example, let’s say you wanted a 2020 Kia Telluride, one of Edmunds’ top picks for a family SUV. The base LX model starts at $32,735, including destination fees. Kia prices the fully loaded SX model at $42,535, a difference of nearly $10,000.
Going with the SX does mean you’ll miss out on a few luxury features. But the Telluride LX is hardly bare-bones. The same is true of a lot of other new cars.
The alternative would be to shop for a smaller vehicle. The 2019 Honda CR-V, for example, is another top-rated SUV. It seats two fewer but offers fairly comparable cargo space. The manufacturer’s suggested price for a respectably equipped CR-V EX is just $28,445.
Lease the vehicle
Monthly payments are less expensive for a lease than for a traditional vehicle purchase since you’re essentially paying off a smaller amount (the vehicle’s depreciation plus taxes and fees) for a shorter period of time. The average lease payment was $477 in June, but you can easily find deals for less since luxury vehicles tend to inflate the average.
That said, this option will cost you more in the long run since you don’t own the vehicle and can’t rely on the equity for the next purchase. But if you’re looking for a shorter-term solution or simply like driving a new vehicle every few years, leasing is a viable option.
Trade it in
What if you’re already making payments on a car but realized that you paid too much? You’ll first need to determine if you have equity in the vehicle. If you do, selling your car directly to a car dealership that specializes in quick trade-ins is the easiest way to get out from under a car loan you can no longer handle. CarMax is one good avenue. You might even have some money in your pocket to put toward another car purchase — preferably one with more manageable payments.
Refinance the loan
If you need to keep the car, being in an equity position should allow you to refinance your current loan. Interest rates are high these days, so you might not be able to find a refinance rate that’s lower than your current loan. But by stretching out the loan term through refinancing, you’ll get more manageable payments. You’ll likely end up paying more in interest, of course, but that is secondary when your goal is to keep your car.
You might be able to refinance with your current lender, but it may make more sense to look into a credit union or your personal bank. These institutions may be able to offer you lower interest rates.
EDMUNDS SAYS: Here are a few proactive measures to secure a lower payment: Buy the right car for your needs, recognizing that it might not be the car of your dreams; factor in the extra costs of car ownership ahead of time; and stay well within your budget instead of pushing it to the max.