The Average American Has $6,671 in Car Debt (Here's How To Make It Less)

Cars are expensive. It is so expensive that the average American has $6,671 in car debt.

A woman with a smile and an outstretched hand receives car keys from a man in a blue suit.Photo byZamrznuti tonovi/Shutterstock.

Lemon Law Experts conducted two analyses using data from The Federal Reserve Bank of New York, The U.S. Census Bureau: American Community Survey & the Bureau of Economic Analysis to determine which states are purchasing more cars than they can truly afford. The answer: Louisiana, Florida, and Texas have the highest auto loan balances relative to income. Texas, Florida, and Louisiana hold the largest average loan balances per vehicle, and the national average outstanding loan balance per vehicle is $6,671.

Buying a car can be costly. In addition to insurance, regular maintenance, and fuel, you must consider monthly payments if you get a new car through financing. Unfortunately, cars are not appreciating assets, and you must factor in all these costs even if you’re struggling financially.

The good news is that owning a car is not all doom and gloom. You can still enjoy it and manage your monthly expenses.

If you don't want to owe enormous amounts of money for your car, then here are some ways to make that number a little bit lower.

1. Consider Refinancing Your Car

Like refinancing a mortgage, you can also refinance your car to reduce the monthly payment and get better interest rates. You can find a new lender if your credit score has improved since you purchased the vehicle. Refinancing the car lets you quickly pay off the balance due to the lower interest rate. Furthermore, you get to save hundreds of dollars during the loan duration.

Do your research and compare different lenders to find one with favorable rates. Ensure you calculate other costs, such as new loan application fees, prepayment penalties, and vehicle appraisal fees, to determine if refinancing makes sense.

2. Negotiate With Your Lender

Negotiating with your lender can help you get better rates on your car loan. Some lenders will give favorable terms if you commit to a payment plan and have a good credit history. If your lender is not willing to negotiate, you can explore another option with a different lender.

Consider alternative options like loan payoff and debt consolidation to make your car payments affordable.

3. Get Ahead of Your Car Loan by Making Extra Car Payments

If you’ve recently received a bonus, annual tax refund or come across a windfall, consider making extra payments to reduce your monthly car payments. Request that the extra payments be applied to the principal, not the interest.

4. Switch to a More Affordable Car

Circumstances change, and a car that was once practical and big enough when you had a large family may no longer serve you when the kids are all grown. Sometimes, you may have opted for a fancy car but later realized it was too expensive to repair or maintain. You can always change to a more affordable vehicle. The best part is that you can trade it in your current vehicle or sell it privately. Downsizing will give you more money that can go towards clearing your loan.

5. Avoid Extended Warranties and Other Add-Ons

Car dealers are clever and might try to trick you into buying extras like service contracts, gap insurance, and extended warranties. While these extras add some convenience, they come at an extra cost and can increase the total cost of your car loan. Decide if these add-ons are essential and skip them to cut costs.

6. Choose Biweekly Payments Instead of Monthly Payments

Consider switching from monthly to biweekly to pay your car loan faster. Biweekly payments will help you save on interest rates and could save you a lot of money in the long run. Talk to your lender about this option to ensure no penalties or fees for making payments in advance.

7. Find Out if Your Employer Offers Special Financing Deals or Discounts

Some companies have employer discounts or special financing deals that can help reduce the cost of your car loan. Ask the HR department if such packages are available to enjoy discounted rates on your loan.

8. Consider a Lease Takeover if You’re Struggling With Loan Payments

If you struggle to keep up with your current loan payments, you can transfer your lease to another person through a lease takeover. This will help you avoid costly early termination fees and could also give you money to get a more affordable car.

Implementing some of the tips above can help cut the cost of your car loan and free up some money in your monthly budget. If you’re considering negotiating or refinancing, ensure the terms are favorable and you can keep up with the interest rate and principal amount.

Consider evaluating your entire budget to determine how to reduce other unnecessary expenses and allocate the extra money towards your car payment. Finding another source of additional income can help you reduce your monthly payments.

Read More:

• How To Sell a Car in 5 Simple Steps
• 12 Reasons You Should Never Buy a Car in Cash
• 10 Tips on How To Get Cheap Car Insurance