Sara Routhier, Managing Editor and Outreach Director, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming world o...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Dec 12, 2011

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Borrowers have a variety of methods available to them in their quest to keep monthly payments on an auto loan to a minimum. There are pros and cons to intentionally reducing monthly payments but close consideration on all of the options can help borrowers with the decision.


A Lengthy Loan


According to a study by Kelley Blue Book, six out of ten borrowers opt for long-term loans when financing new cars.


Average car loans carry a term of 36 to 60 months (three to five years). When extending your auto loan for a term longer than 60 months, monthly payments can drop significantly. This can be very attractive to those will small amounts of income, or to those who already have a large amount of monthly bills.


The negative side to extending a car loan’s term is that a borrower is stuck paying their vehicle off for a very long time. And with the severe depreciation in value most cars fall victim to, borrowers may feel upset in the later years of their loan’s term when they are stuck paying a monthly payment on a vehicle with little worth.


Another downside of financing a vehicle for such a lengthy time is that the interest owed is much more. While the monthly payments will be less, the difference between a three year loan and a seven year loan can equate to thousands of dollars over the life of the loan.


Make a Large Down Payment


The more money a borrower can put down on an auto loan, the less they will owe each month. This is because a larger down payment effectively reduces the amount of money a car-seeker has to borrow. As a result, they take out a smaller loan, and owe less money on that loan.


The conundrum with this piece of advice is if a borrower can afford a large down payment, then they could likely also afford higher monthly payments. Despite that fact though, this is still a very viable method for reducing one’s monthly bill.


Buy Something Practical


Auto loan seekers need to only buy what they can afford. This may seem like an obvious statement, but borrowers often have eyes bigger than the size of their pocket books. An expensive luxury car can easily be replaced with a quality vehicle half the price. Granted the less expensive car won’t have the polished wood finish, the built in windshield display, or seat warmers, but a borrower who can’t afford such add-ons also won’t be forced to struggle financially for the next three, five, or seven years.


Extra features, fast cars, and large engines are appealing to most everybody. But unfortunately appeal and practicality tend to be mutually exclusive for the majority of us. Borrowers need to stick to what they can afford.