How to tell if a monthly car payment is actually a good deal

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If you’re ever looking for a demonstration of the adage “it’s expensive to be poor,” consider buying a car. If you have your eye on a car that costs $35,000 with all expenses included, and you have $35,000 in your bank account, that’s what you’re paying for the car. If you don’t have the money, say you deposit $5,000 and fund the remaining $30,000 with a fiveone-year loan with a rate of 6.9% annual percentage rate of charge (APR). You’ll end up paying $5,557.29 in interest, which means IIncluding your down payment, your $35,000 car will cost you $40,557.29.

What is really amazing about this example is the fact that the monthly payment on this loan ($592.62) is actually relatively low these days. What was once rented out on 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 pay $1,000 a month for their rides, which is…a lot.

But is it too much? Buying a car is often a pressure-baking experience with vendors throwing numbers at you. Meanwhile, new car prices are at their all-time high with a average price of $47,000 (at the top 12.6% Last year)—and don’t even get us started on used car prices, which defy rational numbers. Most people need to finance their car, but they often view car loans the wrong way. So how much is too much for a monthly car payment?

Focus on the total cost

Before determining if your monthly payment is too high, it’s worth pointing out that focusing on the monthly payment is usually a mistake. Of course, you have to make sure you can actually come up with the money each month, so this is a necessary and useful number. But you should focus more on the total cost of the loan. SSalespeople often manipulate other aspects of a car loan to lower monthly payments, making it seem like a better deal. In other words, you might get zero interest and they might overcharge you for the car, but because they added two years to the term, the monthly payment seems doable.

This technique essentially hides the fact that you’re getting ripped off, so it’s essential that you make the monthly payment just one data point to consider when financing a car. Not only does a longer term on your loan mask the overall cost of the car, but new cars lose value so quickly that term should not exceed five years or you risk finding yourself “under water” with the car worth less than what you owe on it.

The average payment for a car

The national average monthly car payment is now between $650 and $700 per month. There are many reasons for this: supply chain issues have driven up the cost of the car itself, and the Federal Reserve has raised interest rates in an attempt to stifle inflation.

The monthly payment depends on the APR of the loan, and the interest rate you get has everything to do with your financial history and credit score. Interest rates range from 2.4% for people with solid gold credit scores above 780 at a dismal 14.76% for people whose credit scores resemble a batting average. This has a huge impact on the total cost of your loan and therefore the size of your monthly nut on the car.

Of course, an average is nothing but an average. You can find car deals with monthly payments well below the average $650, especially if you ignore our sage advice and opt for a longer term on your loan, for example, if you’re ready to receive a sixone-year loan, you can get your monthly payment under $300 in many cases. But you can avoid these longforward contracts. Kkeep in mind that these offers generally assume a great credit rating, and rates and offers expire, so the details of these new car offers are subject to change:

  • 2022 Nissan Sentra. This popular compact isn’t fancy, but it doesn’t come with a fancy price tag either. With an MSRP below $20,000, you can find 1.9% APR financing for a period of 36 months. If you fund $15,000, your monthly payment will be around $430.
  • 2022 Chevy Equinox. Brand new with basic features, this small crossover SUV can be purchased with $0 down and $515 per month on a 72 month term and 2.49% APR; but deposit $5,000 and reduce the term to 60 months, and the payout would be $492 at 0% interest.
  • Chevrolet Spark 2022. Another car under $20,000, this sedan can be had with $0 down and $345 a month at 2.49% APR. Deposit $5,000 and the monthly payment is just $257.

A score out of 0% financing: Many car manufacturers offer 0% funding, and there is nothing wrong with that. Just keep in mind that this usually means you’ll be charged more for the car, either with a bundle built into the MSRP or with extras you can’t take out of the deal. It’s not exactly a scam, but it’s another misdirection often used when selling cars. Whether or not the deal works out for you depends on those monthly payments and the total cost of the car once you factor everything in.

As you can see, deals are available, and if you need to keep your monthly car payment well below the national average, you can do it, assuming you have good credit and money to deposit.

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Elaine R. Knight