The average monthly car payments for drivers are approximately $730 for new vehicles and $520 for used ones, as reported by Experian. For many Americans, their car payment ranks as the second largest expense each month after housing costs.
Understanding these typical monthly payments and interest rates is crucial, whether you have poor credit or are considering refinancing your current loan, to ensure you secure the best possible deal.
What is the average car payment in the U.S.?
If you’re considering buying a new car, you might wonder: what’s the average car payment? Experian’s data from the first quarter of 2023 shows that new vehicle owners paid an average of $725 per month, while used car owners paid about $516. These figures reflect monthly payment averages, offering a general range rather than specific amounts for individual vehicle owners.
To determine your own car payment, start with these average figures for new and used vehicles in the U.S. Then, factor in variables such as your credit score, income, the car’s purchase price and market value, as well as the terms and duration of your auto loan. These considerations will help you calculate a more accurate monthly payment tailored to your financial situation.
How much should my car payment be?
There are several tools available to help you estimate your monthly vehicle payments, such as the Chase Auto Payment Calculator. However, understanding the factors influencing these calculations can provide a clearer picture. Here’s a breakdown of key elements that affect your monthly car payments:
Principal
The principal amount is the total sum you borrow to purchase the vehicle. Higher loan amounts result in larger monthly payments because you need to repay both the principal and the interest accrued on the loan.
Interest
Interest represents the cost of borrowing money. A higher interest rate translates to higher monthly payments. Factors influencing your interest rate include:
- Credit history: Lenders assess your credit score and debt-to-income ratio. A higher credit score often leads to lower interest rates.
- Type of vehicle: Interest rates may vary between new and used cars. Used cars typically have higher interest rates due to depreciation, while new cars might offer lower rates despite their higher initial cost.
Fees and taxes
Various fees and taxes are part of your purchase agreement and are typically rolled into your auto loan, increasing your monthly payments accordingly.
Loan term
The duration of your auto loan impacts your monthly payments:
- Longer term: Extending the loan term reduces monthly payments but increases the total interest paid over the loan’s lifespan.
- Shorter term: Shorter loan terms yield higher monthly payments but decrease the overall interest paid and the time it takes to pay off the loan.
Choosing the right balance between loan term and monthly payment involves considering your budget and financial goals. Understanding these factors empowers you to make informed decisions when calculating your desired monthly car payment.
Set yourself up for a lower monthly car payment
As you’ve likely gathered, adjusting one or a combination of the factors mentioned above is a smart approach to securing the most favorable deal on your monthly car payment. While not all suggestions may be applicable to every buyer, exploring one or a blend of these options can potentially benefit your situation.
Borrow less
The amount you’ll need to borrow varies based on your situation, but borrowing less can lead to a lower monthly car payment. Purchasing a new or luxury vehicle often requires a larger loan compared to buying a used or more affordable model. A significant upfront down payment can reduce the amount you need to borrow to cover the remaining vehicle cost. If you still have an outstanding loan from a previous car purchase, your lender might roll the new loan amount into your existing balance, increasing the principal. Alternatively, if you own your vehicle and trade it in, the dealer might offer credit towards your new purchase or issue a check for the trade-in’s value, reducing your borrowing amount.
Here are strategies to minimize the amount you need to borrow for your new car:
- Selecting a less expensive vehicle.
- Opting for a used car instead of a new one.
- Selling or trading in your current vehicle.
- Making a substantial upfront down payment.
- Negotiating the vehicle’s price with the dealer.
Lower your interest rate
Here are strategies to reduce your interest rate on an auto loan:
- Improve your credit score: While this can take time, enhancing your credit score from poor or fair to good or excellent can lead to long-term savings on your auto loan. Focus on making timely payments on existing debts, reducing your debt-to-income ratio, and correcting any inaccuracies on your credit report. Chase Credit Journey® offers tools to help manage your credit score, including alerts and free credit score checks.
- Compare multiple offers: Explore car loans from banks, credit unions, online lenders, and dealerships to find the best rates available. Request estimates and apply for pre-approvals to understand the rates each lender offers. With Chase Auto, you can browse inventory online from home and connect with local dealerships.
- Refinance your current or new loan later: Refinancing your existing loan or a new loan in the future is an option if your credit score improves over time. This approach could potentially secure a lower interest rate and save you money over the life of the loan.