How to Reduce Monthly Car Payments for Financing

How to Reduce Monthly Car Payments for Financing

Written by December 15, 2021

Car financing is a popular method that many Canadians use to own a car. It provides drivers the flexibility to set their own terms when negotiating a finance contract. As advantageous as this is, one problem many Canadians have with their car financing is finding a way to lower their monthly car payments.

Follow this guide to discover the different ways you can reduce the size of your monthly payments when it comes to car financing.

Top Factors for Monthly Payments

To start, we need to understand how car financing works. For this, there are three main factors that determine the size of your monthly payment:

  • Total purchase price: Simply put: the higher your car is priced, the higher your monthly financing payments will be. Be conservative with your choice of car, and your financing payments will follow just the same.
  • Interest rate (APR: Annual Percentage Rate): This is the second most important factor that determines the size of your car payments. As a yearly rate, APR is more difficult to express on a monthly basis, but the basic takeaway you need to know is that higher rates mean higher payments.
    A $35,000 car financed at 5% APR over 5 years will have a total interest of $4,630, while an 8%APR for the same car and conditions will have a total interest of $7,580 – almost a third higher.
  • Loan term: The final factor for determining monthly payments is the length of time taken to pay back the loan. A longer loan term will result in smaller payments. You can arrange to have a shorter loan term to pay it off quicker, but will have to pay more each month. Plan accordingly to create a loan term that suits you best.

When finalizing your financing contract, these three factors will have the most impact upon your monthly payment. By adjusting these factors, you can make your car payments more manageable.

4 Ways to Reduce your Monthly Payment

  1. Larger down payment
  2. Trade in a vehicle
  3. Set a longer loan term
  4. Pay cash for extras

Tip #1: Larger Down Payment

A major way to reduce the size of your monthly payment is to put down a substantial down payment. Ideally, a good down payment will be worth 20% of the car; if not possible, try to put down as much as you can. By paying more at the beginning, you will pay less throughout your financing contract.

When determining a car payment is right for you, try for an amount worth 20% of your gross monthly income. This will set you on a good pace towards paying your vehicle off.

Tip #2: Trade-in

One way to reduce the size of monthly payment when financing is to offer your vehicle as a trade-in. The value of your current vehicle will be used to bring down the overall cost of your new vehicle. This reduces the amount of your loan, and lowers your monthly payments.

To find out what your car is worth, use our Trade-in Estimator. Simply input your vehicle’s year, make, model, and other relevant information to quickly get an online estimate of the trade-in value of your car.

Tip #3: Take a Longer Loan

As explained previously under “loan term,” taking longer to pay off a car loan will have the effect of reducing your regular payments. It will also increase the total cost of the car, so you will have to balance your needs accordingly.

For further information, please contact an Axis advisor.

Tip #4: Get a Used Car

That new car smell is hard to resist, but buying a new car is not a good choice if you want to reduce your monthly car payments. On average, new cars cost more than used cars in Canada at a rate of $575 to $430, a difference of $145. In return, this higher monthly payment gets you a new vehicle that loses 10 to 20% of its value upon leaving the car lot.

Do your wallet a favour – get a used car, and start saving money right off the bat.

Financing and Affordability

Financial planning can be very difficult without concrete details for context. To figure out what you can afford when financing a car, use a reverse payment calculator like DriveAxis' Auto Loan Estimator.

This handy tool helps drivers estimate their monthly payment and budget. It allows you to calculate the monthly payment of a car you like, or figure how much you can afford based upon what you can afford each month.

How do I get approved for financing if I have bad credit?

Getting approved for financing can be a difficult process. If your credit rating is low, many banks and financial institutions will be less likely to approve your car loan application.

Luckily for you, Axis has helped over 75,000 Canadians to get the financing they need for a vehicle. specializes in sub-prime credit situations that helps people with all types of credit.

With our trusted dealer partnerships, we offer an inventory of thousands of vehicles and allow our customers to choose financing terms that fit your situation. On, you can buy the vehicle you want and rebuild your credit along the way.

Register with our prequalification system, and get approved today!

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