What Is The Average Car Payment? – Forbes Advisor

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Car prices have skyrocketed since the Covid-19 pandemic began, causing the average monthly car payment for a new car to jump 11% to $644 in the fourth quarter of 2021 compared to a year earlier, according to a report from Experian.

If you’re on the hunt for a new car and want to get a better idea of what you might pay monthly, here are some statistics on the average car payment and what goes into calculating these figures.

Average Monthly Car Payment

Here’s an idea of the average monthly car payment by certain types of car purchases based on Experian’s fourth quarter 2021 data.

  • New car: $644
  • New leased car: $531
  • Used car: $488

Leasing, a popular type of auto financing that allows you to “rent” a car from a dealership for a fixed term, is usually less expensive than buying. Since you’re planning to return the car, you’re paying less compared to someone who finances a car with the intent to one day own the title.

However, you won’t have equity, or ownership, of the vehicle when you’re leasing it. And you could face additional costs for ware and tear at the end of the lease.

Used cars, which typically cost less than new cars, have lower average monthly payments compared to newer models. Average monthly payments for used cars for Q4 2021 was $488, according to Experian.

What Makes Up Your Car Payment?

Car payments are determined largely by your loan amount, interest rate and length of your loan term, but it can also factor in:

  • The type of car
  • Down payment amount
  • Lender
  • Credit score
  • Fees

As such, everyone pays a different car payment for the same car purchase. For instance, consumers in March spent on average $43,025 for a full-size car and $99,953 for a luxury, full-size SUV or Crossover, according to Kelley Blue Book. These figures are based on purchase price and don’t include total cost over the life of the loan.

Your car payment is broken down as follows:

  • Principal: The principal amount is how much money you borrow to purchase the car.
  • Interest: The interest is what you pay a lender to borrow money. Your interest is based primarily on your credit score—the higher your score, the lower your interest rate. Your interest rate is also based on your lender, credit history, and the type and age of your car.
  • Fees, taxes and charges: Each vehicle purchase has fees attached to it, which vary widely depending on where you live and where you bought the car.
  • Loan term: Your loan term is the amount of time it takes to completely pay off your loan. The longer your term, the longer you’ll pay back your auto loan, which means the more total interest you’ll pay over the life of the loan. But it also means lower monthly payments, which might be best if you don’t have a lot of room in your monthly budget.

Related: Auto Loan Payment Calculator

How Credit Impacts Your Car Payment

Your credit score is one of the most important factors in your car payment. Your credit score influences your interest rate and how much a lender is willing to lend you.

The higher your credit score, the better chance you have at qualifying for an auto loan and getting the lowest interest rate available. A higher credit score also gives you more buying power. It shows lenders you’re responsible with your debt payments and incentivises them to approve the loan.

A lower credit score means paying a higher interest rate, and you might not get the full loan amount you want. If you’re hunting for a new car, you might have to settle for one that costs less than other models you were considering.

Related: How To Improve Your Credit Score

5 Ways to Reduce Your Car Payment

Crafting room in your budget for a car payment, whether new, used or leased, is major. Here are some ways to lower the cost of a car payment.

1. Get Preapproved

Shopping around for the best loan offer and getting preapproved ahead of time gives you more buying power when you eventually head into the dealership. It maps out how much car you can afford and what interest rate you best qualify for based on your credit history.

If you can’t get preapproved on your own, you might consider asking a friend or family member you trust to serve as a cosigner. A cosigner not only helps you qualify for a loan, but if they have excellent credit, you can get the lowest interest rate available. Keep in mind, however, that if you don’t make payments on your loan, your credit score will tank—and so will your cosigner’s.

2. Browse Used Vehicles

New cars are almost always more expensive than used. If you don’t think you can afford the monthly payments of a new car, look into buying a used one.

Search for one that’s certified pre-owned and preferably one with low mileage. The less use the car has had, the more new-like it’ll be—and the less maintenance you’ll have to do early on in your ownership.

If buying a car is still too expensive, look into leasing a car.

3. Boost Your Down Payment

The more money you can pay up front, the less your monthly payments will be. Try to save up as much as possible before starting your car search. If you can wait for a dream car, take the time to stash away every little bit of cash possible for when the time is right.

4. Get a Longer Term for Repayment

Most borrowers, regardless of credit score, get a term of five or more years to keep the monthly payments manageable. Even with the additional accrued interest as a tradeoff for lower payments, getting a loan term of 72 or 84 months is becoming more common as the cost of vehicles continue to rise.

5. Pay Off Some Old Debt

When you complete an auto loan, lenders look at your debt-to-income (DTI) ratio to see if you can comfortably afford to continue making payments in case of an emergency. This is a ratio based on your total monthly debt to income. The lower your DTI, the more favorable you look to lenders; the higher your DTI, the less likely lenders are to give you a low interest rate or approve the amount you need to finance your car.

Pay off as much outstanding debt as you can before applying for a car loan. Whether that’s student loans, medical bills or credit cards, pay it to lower your DTI. This proves to lenders you’re responsible with credit.

Make sure to do some extensive research on the cost of your desired car as well as the cost of financing. A little preplanning and research can set you up for a positive car purchase experience and lay the groundwork for future purchases.

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