How to Renegotiate an Auto Loan for a Lower Payment

Most banks and credit unions allow people to refinance automobile loans under certain conditions. People usually refinance auto loans to lower their monthly payments. However, lower payments often lead to a loan that is more costly because often people agree to extend the length of the loan in exchange for lower payments. That means a loan scheduled to end in say, 30 months is extended to 42 months. This results in significantly lower payments but could cost more money in the long run. The best way to lower your payments is to obtain a lower interest rate.

Instructions

1

Review your credit report and score. A good credit score -- 720 or higher -- will lead to the best interest rate on a refinanced auto loan. Financing is available with lower credit scores but will result in a higher interest rate and higher finance charges. Get a copy of your credit report from annualcreditreport.com The website is endorsed by the Federal Trade Commission to offer free credit reports under the Fair Credit Reporting Act. Follow the instructions on the report to obtain your credit score separately, for a fee.

2

Repair credit, if necessary, before applying for refinancing. Make payments to bring any past due accounts current. Address any other problems such as accounts charged off or placed with a debt collector. Return to annualcreditreport.com after 60 days to obtain a new credit report with updated information. Three free reports are available each year, according to the FTC.

3

Determine the value of your vehicle by getting a free estimate online from Kelly Blue Book, at kbb.com, or a similar service. Or consider calling a couple of auto dealers in your town to ask about the book value of your make and model.

4

Check your auto loan statement for the interest rate, balance and current monthly payment. Drop plans to refinance if the car is worth less than the loan. This happens often because automobiles quickly decline in value, while many people make minimal downpayments or no downpayment at all. The result is a loan that is considered "upside down," making refinancing impossible unless you are willing to pay some of the balance of the loan before refinancing.

5

Establish a goal for lowering your payments by a significant amount, such as more than $100 a month. Contact your current lender in person or on the telephone to negotiate lower payments. Do not apply by submitting a form online, because this does not allow for negotiation. Tell the lender that you are reorganizing your finances and must lower your car payment. Provide your lender with all requested information about your current employment or income and agree to a credit check.

6

Tell the lender the monthly payment you are seeking and ask for the best interest rate and terms possible based on your credit. If necessary, agree to extend the length of the loan to lower the payments. End the conversation by asking if the offer is the best the lender can provide.

7

Contact several other local banks and credit unions to compare rates and terms.

8

Take the deal offering the best combination of lower interest rate and length of loan to get the lower monthly payment you want. Complete all necessary paperwork to secure the loan.