If you’re shopping for a vehicle or reviewing your budget, a common question arises: what is the average car payment? Understanding your monthly car payment requires looking at current loan amounts, terms, and prevailing interest rates. This figure gives you a crucial benchmark for your own financial planning.
In recent years, monthly payments have climbed significantly. Several economic factors have pushed costs higher for buyers. We’ll break down the latest data and explain what influences your personal payment.
What Is The Average Car Payment
As of the latest reports, the average monthly car payment for a new vehicle in the United States is approximately $735. For a used vehicle, the average payment is around $523. These figures represent national averages and can vary widely based on your location, credit score, and the specific vehicle you choose.
It’s important to remember that an “average” includes both very high and very low payments. Many buyers pay significantly more or less than these amounts. Your goal should be to secure a payment that fits comfortably within your personal budget, not just meet the average.
Key Factors That Determine Your Monthly Payment
Your car payment is not a random number. It’s calculated from a few core components. Knowing these helps you understand where you can potentially save money.
The main elements are:
- Loan Amount (Principal): This is the total amount you borrow after your down payment. A larger down payment means a smaller loan and lower monthly cost.
- Interest Rate (APR): This is the cost of borrowing the money. Your credit score is the biggest factor here. A higher score typically gets you a lower rate.
- Loan Term: This is the length of the loan, usually stated in months. Common terms are 36, 48, 60, 72, or even 84 months. A longer term lowers the monthly payment but increases the total interest paid.
Breaking Down The Average New Car Payment
Let’s look closer at the numbers for a new car. The average new car loan amount has risen to over $40,000. The average interest rate for new car loans is currently near 7%. The most common loan term is now 72 months, or six years.
Using these averages, a simple calculation shows how the payment is reached. A $40,000 loan at 7% interest for 72 months results in a payment of about $690. Additional costs like sales tax, fees, and add-ons can easily push the final payment to the reported $735 average or higher.
The Impact of Loan Term on Monthly Cost
Choosing a longer loan term is tempting because it reduces the monthly payment. However, it dramatically increases the total cost of the vehicle. For example, that $40,000 loan at 7% for 72 months costs about $9,600 in interest over the life of the loan. Stretching it to 84 months lowers the monthly payment but adds even more interest.
Breaking Down The Average Used Car Payment
The used car market follows similar rules but with different inputs. The average used car loan amount is around $27,000. Interest rates are often higher for used cars, averaging closer to 9% or more. The average loan term is also lengthy, often between 68 and 72 months.
Calculating with these figures, a $27,000 loan at 9% for 70 months creates a monthly payment of about $490. Again, taxes and fees bring it up to the $523 average. While the payment is lower than for a new car, the higher interest rate means you pay a substantial amount in finance charges relative to the car’s value.
How To Calculate Your Own Car Payment
You should never walk into a dealership without knowing what you can afford. Calculating your own estimated payment is simple and puts you in control.
- Determine Your Budget: Financial experts often recommend that your total monthly car costs (payment, insurance, fuel, maintenance) not exceed 10-15% of your take-home pay.
- Use an Online Auto Loan Calculator: These free tools are invaluable. You input the vehicle price, your down payment, estimated interest rate, and loan term. It instantly shows your estimated monthly payment.
- Get Pre-Approved: Contact your bank or credit union for a pre-approval loan. This gives you a real interest rate and loan amount to use in your calculations, strengthening your position at the dealership.
The Hidden Costs Beyond The Loan Payment
Your car payment is just one part of the total cost of ownership. Budgeting for these additional expenses is essential to avoid financial strain.
- Auto Insurance: Lenders require full coverage. This cost can be high, especially for new or expensive cars.
- Fuel: Estimate your monthly mileage and the vehicle’s fuel economy to project this cost.
- Maintenance and Repairs: New cars may have warranties, but used cars will need routine service and unexpected fixes. Setting aside a monthly amount is wise.
- Registration and Taxes: These are often rolled into the loan but can be recurring annual fees.
What Is Considered A High Car Payment
A high car payment is one that strains your budget or prevents you from meeting other financial goals. While the average is $735, that doesn’t mean it’s affordable for everyone.
A good rule is the 20/4/10 guideline. This suggests a 20% down payment, a loan term no longer than 4 years (48 months), and total monthly vehicle expenses not exceeding 10% of your gross monthly income. If your payment forces you to exceed these guidelines, it may be to high relative to your income.
Signs Your Car Payment Is Too High
- You struggle to make the payment on time each month.
- You have cut back on essentials like groceries or savings to afford the car.
- You have no emergency fund because the car payment takes up to much of your income.
- The loan term is so long that you will likely owe more than the car is worth for most of the loan (called being “upside-down”).
Strategies To Lower Your Monthly Car Payment
If the average payment seems out of reach, or you want to reduce your current payment, there are several strategies you can use.
Increase Your Down Payment
This is the most effective method. A larger down payment reduces the amount you need to finance, which directly lowers your monthly payment and total interest. Saving up for a bigger down payment requires patience but pays off significantly.
Improve Your Credit Score
A higher credit score qualifies you for lower interest rates. Even a small rate reduction can save you tens of dollars per month and thousands over the life of the loan. Check your credit report for errors, pay bills on time, and reduce credit card balances to improve your score.
Choose A Shorter Loan Term
While a shorter term means a higher monthly payment, it saves you a substantial amount in interest. If you can afford the higher payment, a 48 or 60-month loan is much more financially sound than a 72 or 84-month loan. You’ll own the car free and clear much sooner.
Consider A Less Expensive Vehicle
This is the simplest strategy. The sales price is the biggest factor in the loan amount. Opting for a reliable used car, a base model instead of a fully-loaded one, or a brand known for value can keep your payment manageable. Sometimes the most affordable car is the one you already own, if maintaining it is cost-effective.
Leasing Versus Financing: How Payments Differ
Leasing a car is another popular option, and the monthly payments are typically lower than financing a purchase. However, it’s a different financial arrangement.
When you lease, you are paying for the vehicle’s depreciation during the lease term, plus fees and interest. At the end of the lease, you return the car and have no equity. Lease payments are lower because you are not paying for the entire value of the car. The average new vehicle lease payment is currently around $550 to $600.
- Pros of Leasing: Lower monthly payments, drive a new car every few years, often covered by warranty.
- Cons of Leasing: Mileage restrictions, wear-and-tear charges, no ownership at the end, perpetual payments.
Frequently Asked Questions (FAQ)
What Is A Good Car Payment Per Month?
A good car payment is one that aligns with the 10-15% rule for total vehicle costs relative to your take-home pay. For many individuals, a payment between $400 and $500 is considered manageable, but it completely depends on your income, debt, and other expenses.
How Much Is The Average Truck Payment?
Truck payments are generally higher than the average car payment due to their higher purchase prices. The average monthly payment for a new truck can easily exceed $800, with many full-size models pushing payments well over $1,000 for higher trims.
What Is The Average Car Payment For A 72-Month Loan?
For a 72-month loan, the average payment mirrors the overall averages because it’s the most common term. You can expect an average near $735 for a new car and $523 for a used car on a six-year loan, assuming average loan amounts and interest rates.
Is A $700 Car Payment Too High?
Whether a $700 car payment is to high depends entirely on your financial situation. For someone earning $10,000 per month, it’s likely fine. For someone earning $4,000 per month, it could be a severe burden. Use the percentage-of-income guidelines to assess what’s right for you.
How Can I Get Out Of A High Car Payment?
Options include refinancing your loan for a lower rate, selling the car and paying off the loan (if you’re not upside-down), trading it in for a cheaper vehicle, or in extreme cases, voluntary repossession. Each option has credit and financial implications, so research carefully.
Knowing what is the average car payment provides a useful starting point for your own financial decisions. Remember, the goal isn’t to match the average, but to secure a payment that allows you to enjoy your vehicle without compromising your financial health. Always calculate the total cost of the loan, not just the monthly payment, and make a choice that supports your long-term goals.