How to Downgrade Your Car to Save Money and Pay Off Debt – The Dough Roller
Buyer’s remorse can often feel overwhelming, especially in times of economic uncertainty. It can be especially strong after buying a car that turns out not to fit your budget or savings goals.
Although it may initially seem like the next step in your progression to owning a car, an expensive car payment can add unnecessary stress to your budget and slow your progress towards financial independence. Even if you appreciate the benefits of your new car, you might not consider the added strain on your budget a reasonable trade-off in this economy.
If you’d rather have the extra cash to pay off a pressing debt, like a high-interest credit card, you might decide it’s time to downgrade your car. Here are some steps you can take to lower your car payments.
Seek help from the dealer
One of the easiest things to do is return to your original car dealership (or even another dealer of the same brand) and see if they can help you find a vehicle better suited to your financial goals.
One challenge you may have in this situation is that the value of your car may have depreciated since you bought it. You could even lose money on your new car loan. Hopefully, your current car will be worth more than you owe, or at least close to the same amount.
If you trade in your car, the dealer can use its value to offset the loan, and you can get a small loan on another car. If your car is worth more than you owe, the excess is used as a down payment to reduce what you borrow to pay for a cheaper new car.
Even if you owe more than your car is worth, some dealerships offer you the option of trading in a more expensive car to downgrade it. You may need to transfer some of the old loan into the new loan, but you may have a much more manageable monthly payment afterwards. With better cash, you can pay off other debts and reach your financial goals faster.
It’s important to be careful with these types of offers, however. Always read the fine print. In many cases, you could end up with a longer loan term that costs more in interest or fees over time. Run the numbers to see if the offer is right for your situation.
Sell your car privately
Depending on how your car has held its value, you may be able to sell the car privately and pay off the outstanding loan. You may even have money left over to put down a down payment on a cheaper car so you can borrow less on the downgraded car.
This approach can put cash in your hands right away and help you at least stay ahead of your immediate bills.
Get rid of your car and switch to a beater
If you’re worried about getting another loan, even if the payment is lower, another consideration is to upgrade to a reliable, no-frills vehicle. Sell your current car and use the proceeds to pay off the loan. This allows you to completely eliminate paying for your car. With this extra money, you can get rid of your other debts faster.
Another variant is to completely abandon the car. If you live in an area where it makes sense to use reliable public transportation to and from work, you might be better off without a car for a while. You end up without the costs associated with a car and can use your cash flow to destroy other debts.
Consider car insurance costs
In many cases, a more expensive car will also result in a higher car insurance bill. Therefore, if you downgrade, you may be able to save on your auto insurance costs as well as your monthly payment. These savings can additionally be used to pay off debt.
This is usually a last resort, in case you cannot downgrade your car. If it’s not possible or practical to downgrade your car and you need a little wiggle room in your budget, you can see if it’s possible to refinance your car loan.
When you refinance, you may be able to get a longer loan term, which will lower your monthly payments. If your interest rate stays reasonable, you can use the monthly savings to start paying off high-interest debt, like credit cards. Once these are paid off, you can try to pay off your refinanced car loan sooner so that you don’t keep it for the entire term.
However, be careful with this option. When you extend the term of your loan to lower your monthly payments, you’ll potentially end up in debt longer and end up paying more interest over time. This makes your car more expensive in the long run and can cost you dearly.
Find the best personal loan for you
When you downgrade your car, you are making the decision to pay less on your monthly car payments so that you can use your resources for other purposes, including paying off other high-interest debts you may have. Consider the options carefully and choose a course of action that can help you achieve your long-term goals.