My Car Payment Is Too High! What Can I Do?
- A car payment should be considered too high if it forces you to skip bills or rely on credit cards.
- You may be able to lower payments by refinancing or downsizing.
- Refinancing may be best if your credit score is high, or if rates are low enough.
If you wince every time you make a car payment, you're definitely not alone. Car payments are up, and climbing. The average car loan payment was $687 in 2025. In 2020, it was $535—which means car payments climbed 22% in just five years.
Car payments are rising more slowly as of this year, and are up less than 2% so far. But that doesn’t stop a high car payment from being painful.
Good news: you don’t have to wait for rates to fall. There are at least five ways to potentially lower your car payment right now. But first, let’s look at how to tell if your car payment is too high in the first place.
How to Tell If Your Car Payment Is Too High
Rule of thumb: Most experts say to keep monthly car payments below 10% of your income before taxes (if possible). It also says to keep total car payments, including insurance and gas, below 20% of your income.
This is just a starting point, an estimate of where a car payment would slot into your budget comfortably. Your mileage, yep, varies. And you can fall below 20% and still overspend.
Checklist time. Is any of the following true?
You’re stretching to make payments.
You’re skipping other bills.
You’re leaning on credit cards to cover the gap.
If so, your car payment is probably too high for your budget and may not be sustainable. Fortunately, you may have options for reducing your car costs.
5 Ways to Lower Your Car Payment Right Now
In order of easiest to most involved:
Refinance
Defer a payment
Cut related costs
Sell or trade down
Explore debt relief
Let's take a look at each option and how it might work for you.
1. Refinance
You may be able to refinance your car loan to shrink your monthly car payment. When considering refinance options, make sure you think about both the interest rate and the term length.
APR: Make your loan cheaper overall with a lower APR (annual percentage rate). Everything else being equal, a lower APR means you pay less monthly. If you can swing it, getting a lower APR is one of the biggest pros of refinancing. Higher credit scores tend to unlock lower interest rates.
Term length: Spreading repayment out over a longer term helps reduce your monthly payment. So you could shrink your loan payment by switching to a longer term even if your interest rate stays the same. Here’s why not everyone does this: Car payments shrink, but total interest owed goes up. You save right now, but by the time your car is paid off, you’ll have paid more.
Signs you should consider refinancing:
Your credit score has gone up since the original finance.
Loan rates have fallen.
You have more than two years left on your loan.
If any of the above is true, you might benefit from a refinance. Most lenders let you shop for car loans without hurting your credit score using prequalification. Check for prequalification with at least three lenders so you can compare quotes.
2. Defer a payment
You could ask your lender to defer a loan payment. This is a temporary solution when you have a short-term issue. It’s worth considering if you can’t make a month’s car payment because of a one-time emergency expense. Not all lenders allow this, but you can ask.
Something to know: If your lender approves a deferment, you don’t pay anything for a month, but interest still builds on your loan. Basically, your loan gets slightly pricier. This interest is typically tacked onto the end of your loan. Chances are, your monthly payments will stay the same, and your payoff period will extend a bit.
3. Cut related costs
This won't impact your loan payment, but there are a lot of ways to cut car-related costs. Specifically, look into cutting back on car insurance and limiting unnecessary driving.
The average monthly car payment is $921 when you add car insurance to the mix. In some states, the average payment is over $1,000 (looking at you, New York and Texas). Shop around for cheaper insurers. Collecting quotes doesn’t impact your credit score.
If you don’t drive much, look for insurers that offer pay-per-mile deals. The less you drive, the more you save. Also, check with insurers that already cover your home, pet, or car. Some offer discounts when you insure multiple things.
Additionally, driving less saves on fuel costs. The average American spends about $204 on gas monthly. Driving 50% less could save you $100 a month, freeing up space to cover your car payment. Carpooling, biking, and free delivery options could help you reach your goal.
4. Sell or trade down
Sell or trade down your car if necessary. We get it—your car might be necessary for getting to work. It’s why folks buy cars despite costs. When selling is off the table, a trade-in could hit the mark. Trading in for a cheaper car could lower your monthly payments right away.
Selling or trading-in makes sense when your car is worth more than the loan. When the opposite is true, you might struggle to find a lender, and it could make your monthly payments more expensive—not what we’re going for here.
5. Explore debt relief
Auto loan debt relief makes sense if your car payments are consistently unpayable. You might contact your lender to enroll in a hardship program, surrender your car voluntarily, or attempt to settle the debt.
Settling an auto loan isn't often an option, since lenders are less willing to negotiate for secured loans. Another solution could be to settle your unsecured debts, like credit card debt, to make more room in the budget to pay your car loan.
When a high car payment is the tip of the iceberg
It’s not just you—Americans in general are struggling to make payments. Five percent of auto debt was 90 days late in the third quarter of 2025 according to the New York Federal Reserve Bank, up from the same period a year earlier. About 8% were 30 days past due.
It’s also important to consider that the source of financial struggle might not be the car, but rather, your debt load in general. A car may be part of it, but so is credit card debt, student debt, and your mortgage. If making a car payment is tough, you might have good results from attacking other debts first.
Author Information
Written by
Cole Tretheway
Cole is a freelance writer. He’s written hundreds of useful articles on money for personal finance publications like The Motley Fool Money. He breaks down complicated topics, like how credit cards work and which brokerage apps are the best, so that they’re easy to understand.
Reviewed by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.