Rising interest rates, high prices, and a low supply of new cars make cars increasingly unaffordable. In June 2022, the average price of a car topped $48,000, which was a 13% increase from last year.
For many Americans, buying a car is a big financial decision. It's similar to taking out a mortgage. You need to figure out the monthly payments and ensure they won't make you late on your bills.
Monthly Car Payments
Average Monthly Payments for a New Car: $667
Average Monthly Payments for a Used Car: $515
Here's a breakdown of the average loan terms for new and used cars:
Loan Amount – Used Cars $28,534 and New Cars $40,290.
Monthly Payment – Used Cars $515 and New Cars $667.
Interest Rate – Used Cars 8.62% and 4.33%.
Loan Terms – Used Cars 68.01 months and New Cars 69.46 months.
Auto Loan Payments Based on Credit Score
850 – 781: Used Car $485 and New Car $640.
780 – 661: Used Car $508 and New Car $673.
660 – 601: Used Car $532 and New Car $696.
600 – 501: Used Car $531 and New Car $692.
500 – 300: Used Car $515 and New Car $660.
Now that you know how much you might need to shell out of your pocket monthly, let's take a look at the ways to lower your auto loan payments.
Refinance The Loan
It's best to refinance your loan to get new loan terms with a lower interest rate. If your credit score has improved since you bought your car, you can use the new funds to pay off the loan with low monthly payments.
For example, your auto loan balance is $20,000 with a 6% interest rate. You have to pay this amount in three years. If your improved credit score allows you to refinance your loan with a 4% interest rate, you can lower the monthly payments to $590.48 from $608.44 and save $646.52 in interest.
Trade-In Your Car
One of the easiest ways to lower your monthly auto payments without hassle is to trade your car at the dealership. The cash you have already paid on your current car can be used as a down payment, and you can choose a more affordable vehicle to further lower the monthly payments.
Talk With The Lender
This trick does not always work, but it's worth trying. Let's say you miss a monthly payment. The lender informs you that you are behind on your payment, and you assure them you will make it soon.
The following month arrives, and you miss another payment. You knew this was going to happen. The lender now thinks you are defaulting on the loan and possess your car.
You could have avoided all this by informing the lender about your situation and working something out. The lender would rather have their money than get nothing at all. So, talk with them and come to a mutual decision.
If you are thinking about buying a car, you can do plenty of things to lower the monthly payments, such as making a large down payment, improving your credit score, and selling your old vehicle privately.
In conclusion, whether you have bought your car or are buying one, there are various ways to lower the monthly payments. Always shop around to find the best rate instead of choosing a referral from family or friends.