How to Know If a Monthly Car Payment Is a Really Good Deal
If you’ve ever looked for proof of the adage “it’s expensive to be poor”, take a look at buying a car. If you have your eye on a car that costs $35,000 with all fees and you have $35,000 in your bank account, that’s what you pay for the car. If you don’t have cash, let’s say you invested $5,000 and funded the remaining $30,000 with a five-year loan with an annual interest rate of 6.9% (APR). You end up paying $5,557.29 in interest, which means that including your down payment, your $35,000 car will cost you $40,557.29.
What’s really incredible about this example is the fact that the monthly payment on this loan ($592.62) is actually quite low these days. What used to be rent for a one-bedroom apartment is now an attractive monthly payment for a car you don’t even own. A growing number of new car buyers are actually paying $1,000 a month for their rides, which is… a lot.
But isn’t that too much? Buying a car often turns into a pan when salespeople throw numbers at you. Meanwhile, new car prices are at their highest ever with an average price of $47,000 (up 12.6% last year ) – and don’t even get us started with used car prices that defy rational numbers. . Most people have to finance their cars, but they often look at car loans the wrong way. So how much is too much for a monthly car payment?
Focus on total cost
Before we get into whether your monthly payment is too high, it should be emphasized that focusing on your monthly payment is usually a mistake. Of course, you need to be sure that you can receive money every month, so this is a necessary and useful number. But you should focus more on the total cost of the loan. Sellers often manipulate other aspects of a car loan to reduce monthly payments, making the deal more profitable. In other words, you may get a meager interest rate and they may overcharge the car, but since they’ve added two years to the term, the monthly payment looks doable.
This method essentially hides the fact that you are being scammed, which is why it is important that the monthly payment is just one of the data to consider when financing a car. Not only does a longer loan term hide the total value of the car, but new cars depreciate so quickly that the term should not exceed five years, otherwise you risk being “under water” and the car is worth less. than what you need on it.
Average car payment
The average national monthly car payment is currently between $650 and $700 per month . There are many reasons for this: problems with the supply chain have driven up the cost of the car itself, and the Federal Reserve has raised interest rates in an attempt to quell inflation.
The monthly payment depends on the annual interest rate on the loan, and the interest rate you receive is directly related to your financial history and credit score. Interest rates range from 2.4% for people with a gold credit score above 780 to a dismal 14.76% for people whose credit score resembles an average. This has a huge impact on the overall cost of your loan and therefore your monthly car nut.
Of course, the average is just an average. You can find car deals with monthly payments well below the $650 average, especially if you ignore our sage advice and opt for a longer loan term – for example, if you’re willing to take on a six-year loan, you can get your monthly payment under $300 in many cases. . But you can avoid these long-term deals. Please be aware that these deals usually come with an excellent credit score and bids and offers expire, so the details of these new car deals are subject to change:
- Nissan Sentra 2022 This popular compact isn’t fancy, but it doesn’t come with a fancy price either. With an MSRP of less than $20,000, you can find funding at 1.9% per annum for 36 months. If you finance $15,000 of that amount, your monthly payment will be around $430.
- Chevrolet Equinox 2022. Brand new, with basic features, this small crossover SUV is available for $0 upfront and $515 per month for 72 months and 2.49% interest; but deposit $5,000 and shorten the term to 60 months and the payment is $492 at zero interest.
- 2022 Chevrolet Spark . Another car under $20,000, this hatchback can be purchased with zero fees and $345 per month at 2.49% APR. Deposit $5,000 and the monthly payment is only $257.
One note about 0% financing: many car manufacturers offer 0% financing, and there is nothing wrong with that. Just be aware that this usually means you’ll be charged extra for the car, either with a baked package at the manufacturer’s suggested retail price or extras you can’t exclude from the offer. It’s not exactly a scam, but it’s another misconception often used when selling cars. Whether the deal works for you depends on those monthly payments and the total cost of the car, if you factor everything in.
As you can see, there are deals out there, and if you need your monthly car payment to be well below the national average, you can make it happen – as long as you have good credit and some money to save.