What's the Average Monthly Car Payment?
Car payments are a significant part of many drivers' monthly expenses, often following housing costs. Understanding the typical cost and how factors like loan amount, interest rate, and credit score influence your payment will help you manage this financial responsibility.
Car payments are a big expense for many drivers, right behind housing costs. With the average new car payment over $730 and the used car payment around $520, you need to know what you’re getting yourself into when taking on this financial responsibility. Whether you’re buying a car for the first time, refinancing, or just evaluating your current situation, knowing the costs and rates will help you make a smart decision. Keeping your car payment within your budget - ideally no more than 10% of your take-home pay - will give you the financial breathing room to avoid stress.
What Determines Your Monthly Car Payment
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Loan amount. The loan amount is the total you borrow to buy your car, which is calculated by taking the car’s price and subtracting any down payment or trade-in value. This is the principal part of your monthly car payment and can make a big difference in your payment size.
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Interest rate. The interest rate is the extra you pay to borrow money, expressed as a percentage. Lenders base this rate on several factors including your credit score, debt-to-income ratio, and financial stability. Be sure to compare lenders by looking at the annual percentage rate (APR) since it includes all fees and gives you a clear picture of the total cost of the loan over time.
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Type of car and where you buy it. The car you buy and where you buy it can affect your interest rate. For example, used cars have higher interest rates than new cars. Buying from a private seller instead of a dealership may also result in higher rates since private transactions are riskier for lenders.
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Loan term. The loan term, or how long you have to pay back the loan, also affects your monthly payment. Loan terms are usually 24 to 84 months, with longer terms meaning lower monthly payments but more total interest paid. A shorter term means higher monthly payments but less total interest over the life of the loan.
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Credit scores. A higher credit score means you qualify for lower interest rates, which means lower monthly payments. For example, a $30,000 loan with a 48-month term at a 7% interest rate means lower payments than the same loan at a higher interest rate.
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Down payment. A bigger down payment means less loan amount and therefore lower monthly payments since you’re borrowing less.
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Add-ons. Buying add-ons like gap insurance or extended warranty and including them in your loan means higher monthly payments. Avoiding unnecessary coverage can save you money in the long run.
Auto Loan Averages: New and Used Cars
Monthly payment. New $734. Used $525.
Loan amount. New $40,900. Used $26,300.
Interest rate. New 6.84%. Used 12.01%.
Loan term. New 68.48 months. Used 67.41 months.
Credit score. New 753. Used 689.
Source: Experian State of Automotive Finance Market, Q3 2024
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How Credit Scores Affect Car Payments
Lenders use your credit score to determine how likely you are to pay back the loan. A good credit history means more favorable loan terms, including lower interest rates. With lower interest rates, your monthly payments will be more affordable. A bad credit score means higher interest rates, which means higher monthly car payments. The interest charged on your loan is a big factor in determining your payment amount. Check your free credit score to see where you fall in the credit tiers and see the average monthly payments for new and used cars based on your credit profile.
Average Monthly Car Payment by Credit Score
Credit score 781-850. New car - $717. Used car - $522.
Credit score 661-780. New car - $742. Used car - $518.
Credit score 601-660. New car - $765. Used car - $535.
Credit score 501-600. New car - $749. Used car - $536.
Credit score 300-500. New car - $719. Used car - $532.
Source: Experian State of Automotive Finance Market, Q3 2024
How Loan Term Affects Your Car Payment
Choosing a longer loan term can help lower your monthly car payment, which is why many car buyers opt for 69-month terms for both new and used cars. But stretching out the loan term means more overall cost. While car values have been relatively stable lately, cars lose 20-30% of their value in the first year, and by the time you’re paying off a 5 or 6-year loan you could owe more than your car is worth. And longer loan terms mean more interest paid.
For example, a $20,000 used car loan with 9% interest would cost an extra $2,000 in interest if the loan term is extended from 36 to 60 months. 60 months for new cars and 36 months for used cars is the sweet spot to balance lower payments with overall affordability.
Total Interest by Loan Term (example)
Loan $20,000 with 9% APR for 36 months with $636 per month, the total interest will be $2,896.
Loan $20,000 with 9% APR for 60 months with $415 per month, the total interest will be $4,910.
Loan Term by Credit Score
Loan terms for new and used cars are similar, 68 months for new cars and 67 months for used cars. But your credit score can affect this. Deep subprime buyers get shorter terms, 63 months for used cars, while near-prime buyers get longer terms for new cars, 74 months.
The biggest difference in loan terms is between super-prime and near-prime buyers for new cars. Super prime buyers pay off their loans about 10 months faster and save on interest. Longer loan terms mean lower monthly payments but more interest and a higher risk of being upside down on your loan as cars lose value fast. Shorter loan terms mean higher monthly payments but less interest and a lower risk of owing more than your car is worth.
Average Loan Term by Credit Score
Credit score 781-850. New car - 64.04 months. Used car - 65.56 months.
Credit score 661-780. New car - 71.41 months. Used car - 68.63 months.
Credit score 601-660. New car - 74.13 months. Used car - 68.27 months.
Credit score 501-600. New car - 73.39 months. Used car - 66.44 months.
Credit score 300-500. New car - 72.24 months. Used car - 63.75 months.
Source: Experian State of Automotive Finance Market, Q3 2024
How Loan Amount Affects Your Car Payment
Experian reports the average auto loan amount in 2024 was $41,086 for new cars and $26,091 for used cars, with new car loans showing a slight increase, while used car loans decreased. Borrowers with prime credit scores (661-780) tend to take out the largest loans for new cars, averaging around $43,000. Super prime buyers (781-850) generally borrow more for used cars, with the average loan amount at $27,860.
A higher loan amount means higher monthly payments, which could strain your budget. To reduce these payments, consider increasing your down payment, trading in your current vehicle for a higher value, or opting for a more affordable car. Lowering the loan amount or the interest rate can significantly impact the total cost of the loan and make the monthly payments more manageable.
Average Auto Loan Amounts by Credit Score Range
Credit score 781-850. New car - $39,369. Used car - $27,860.
Credit score 661-780. New car - $43,138. Used car - $27,243.
Credit score 601-660. New car - $42,765. Used car - $25,047.
Credit score 501-600. New car - $38,400. Used car - $21,905.
Credit score 300-500. New car - $34,608. Used car - $20,082.
Source: Experian State of Automotive Finance Market, Q3 2024
How Much Is a Down Payment?
A down payment can lower your monthly payments and the total amount you need to borrow. It includes the cash you have, the value of a trade-in, or rebates. By making a bigger down payment, you'll save money before the loan even starts and become more attractive to lenders.
A good down payment is 20% for a new vehicle and 10% for a used vehicle. But many buyers don’t meet these targets. In 2024, new car buyers put down $6,619 on average and used car buyers $4,165, which is about 16% and 15% of the vehicle price respectively, according to Edmunds.
How Loan Interest Rate Affects Your Car Payment
Experian reports in 2024, the average interest rate for new car loans is 6.84%, while used car loans are higher at 12.01%. Your interest rate depends largely on your credit score. Borrowers with higher scores get the best rates, while those with lower scores face higher rates - up to 15.77% for new cars and 21.55% for used cars.
A higher interest rate means higher monthly payments and more paid in interest over the life of the loan. To get the best rate, compare offers from different lenders, including online and traditional banks, and consider pre-qualifying to see what you can expect before applying.
Average Interest Rates by Credit Score
Credit score 781-850. New car - 5.25%. Used car - 7.13%.
Credit score 661-780. New car - 6.87%. Used car - 9.36%.
Credit score 601-660. New car - 9.83%. Used car - 13.92%.
Credit score 501-600. New car - 13.18%. Used car - 18.86%.
Credit score 300-500. New car - 15.77%. Used car - 21.55%.
Source: Experian State of Automotive Finance Market, Q3 2024
Calculate Your Monthly Car Payment
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Estimate vehicle maintenance costs. Use online Edmunds’ car maintenance calculator to get an estimate for your vehicle.
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Add insurance. Not all states require full coverage, but the average driver pays about $192 per month.
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Fuel factor. Use your car’s MPG, your estimated monthly miles, and local fuel prices to estimate fuel costs.
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Add registration fees and taxes. These will vary by state, so check your state’s fees.
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Depreciation. Cars lose value over time and this affects the overall cost of ownership.
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Use a car payment calculator. Enter the loan term, interest rate, and purchase price, and you can estimate your monthly payment before finalizing the loan.
How Much Car Payment Should Be
A general rule of thumb is to not spend more than 10% of your take-home pay on your car payment. And all car-related costs (insurance, fuel, maintenance) should not be more than 15% to 20% of your monthly income.
If this feels too restrictive, try the balanced budget approach. Under this method, you allocate 50% of your income for necessities (housing and transportation), 30% for wants (entertainment, dining out), and 20% for savings or debt. Your car payment falls under “necessities” if it’s for work or daily activities.
This approach gives you flexibility. For example, if you share housing costs, you can use more of your budget for a car payment. Or you can consider part of your car payment as a “want” and adjust your spending accordingly. The key is to have a balanced budget and be able to afford your car payment without financial strain.
Conclusion
FAQ
Which financial institutions are used for auto financing?
As of the 3rd quarter of 2024, banks are the most used source for auto financing, with 28.7% of the market share. Credit unions are second with 23.7% and manufacturers’ financing arms (captive lenders) with 21.9%. While banks and credit unions are the preferred choice for most buyers, “buy-here, pay-here” dealerships (often associated with high interest and predatory lending) make up a big chunk of the used car financing market, 15.6%. Captive lenders have a much smaller presence in the used car segment, 8.2%.
How does the Federal Reserve’s interest rate affect auto loans?
The Federal Reserve’s benchmark rate, which is 4.5-4.75% as of November, determines how much banks charge each other for lending. This in turn affects the interest rates offered to consumers for loans, including auto loans. Although the recent rate cuts are expected to trickle down to lower auto loan interest rates, it hasn’t happened yet. Even with falling car prices, the high interest rates can still lead to more loan defaults and financial strain for some borrowers.
What if my car payment doesn’t fit my budget?
If you’ve adjusted your budget and shopped for loans and still can’t afford the car payment, consider the following options. First, reduce the amount you need to borrow by buying a cheaper car or saving for a bigger down payment. You can also use online tools like Kelley Blue Book to research the best trade-in value for your current vehicle. If you can, delay buying a car, waiting might give you more options if car prices drop. Lastly, if you must go ahead with a high payment, refinancing after making consistent on-time payments might help lower your interest rate and your monthly payments in the future.
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