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 to be a poor match for your budget or savings goals.

While it may initially feel like the next step in your progression of car ownership, an expensive car payment can add unnecessary stress to your budget and slow your progress towards financial independence. Even if you enjoy the perks of your new car, you might not view the added strain on your budget as a reasonable trade-off in this economy.

If you would rather have the extra cash to pay down pressing debt, like a high-interest credit card, you might decide that it’s time to downgrade your car. Here are some steps to take to reduce your car payments.

Look for Help from the Dealer

One of the easiest things to do is to go back to your original car dealer (or even a different dealer for the same make) and see if they can help you find a vehicle that is a better fit for your financial goals.

A challenge you might have in this situation is that your car’s value may have depreciated since you purchased it. You might even lose money on your new auto loan. Hopefully, your current car will be worth more than what 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 smaller loan on a different car. If your car is worth more than what you owe, the excess is used as a down payment to reduce what you borrow to pay for a new, less expensive car.

Even if you owe more than your car is worth, there are some dealers that offer you the option to trade-in a more expensive car to downgrade. You might have to roll a portion of the old loan into the new loan, but you may have a much more manageable monthly payment afterward. With a better cash flow, you can pay down other debt and reach your financial goals more quickly.

It is important to be careful with these types of deals, 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 makes sense for your situation.

Sell Your Car Privately

Depending on how well your car has held its value, you might be able to sell the car privately and pay off the current loan. You may even have money left over to make a down payment on a less expensive car so that you 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 Downgrade to a Beater

If you are concerned about getting another loan, even if the payment is lower, another consideration is downgrading to a reliable, no-frills vehicle. Sell your current car and use the proceeds to pay off the loan. This allows you to eliminate your car payment altogether. With that extra money, you can get rid of your other debts faster.

Another variation of this is to ditch the car altogether. If you live in an area where it makes sense to use reliable public transportation to get to and from work, you might be better off without a car for a period of time. You end up without the costs associated with a car and can put your cash flow to use destroying other debt.

Consider Car Insurance Costs

In many cases, a more expensive car is also going to come with a higher auto insurance bill. As a result, if you downgrade, you might be able to save money on your car insurance costs as well as on your monthly payment. These savings can further be used to pay off debt.

Consider Refinancing

This is generally a last resort, in the event that you can’t downgrade your car. If it’s not possible or practical to downgrade your car, and you need some breathing room in your budget, you can see if it’s possible to refinance your car loan.

When you refinance, you might be able to get a longer loan term, reducing your monthly payments. If your interest rate remains reasonable, you can use the monthly savings to begin paying down high-interest debt, like credit cards. Once those are paid off, you can try to pay off your refinanced auto loan early so that you don’t keep it for the full term.

Watch out for this option, though. When you lengthen your loan term to reduce your monthly payments, you will potentially end up in debt longer and wind up paying more in interest over time. This makes your car more expensive in the long run and can cost you a lot.

Find the Best Personal Loan for You

Bottom Line

When you downgrade your car, you’re making a decision to pay less on your monthly car payments so that you can use your resources for other purposes, including tackling other high-interest debt that you might have. Carefully consider the options and choose a course of action that is likely to help you accomplish your long-term goals.


  • Miranda Marquit

    Miranda Marquit is a nationally-recognized financial writer and money expert. She has contributed to NPR, Marketwatch, Yahoo! Finance, U.S. News & World Report, FOX Business, The Hill and numerous other publications. Miranda is an avid podcaster and writes about money and freelancing at her website, []. She lives in Idaho and loves reading, board games, travel, the outdoors and spending time with her son.