Average Car Payment: Your Essential Guide
Thinking about buying a car and wondering how much it will cost? What is the average car payment and what factors will impact yours? We’ll cover all the details here, and also provide a few money-saving tips.
We’ve chosen to highlight data for used car purchases because Americans bought—and financed—meaningfully more used cars than new cars in 2016. To be exact, the sales figure was 38.5 million used cars vs. 17.5 million new cars.
Average car payment: Quick data for used car purchases1
Credit score range: 661–780
Credit score range: 601–660
|Average Car Loan Amount||$20,778||$18,913|
|Average Car Loan Term||66 months||65 months|
|Average Car Loan Interest Rate||5.29%||9.88%|
|Average Monthly Car Payment||$357||$363|
Average car payment: 3 key factors
There are three main components that determine the monthly payment of any loan, whether it’s a mortgage or car loan: the loan amount, interest rate and repayment term. When it comes to car loans, here are the specific factors that influence each component:
1. Loan amount
When you’re financing the purchase of car, the loan amount is generally the result of a simple equation2:
Loan Amount = Sticker Price – Trade-in Value – Down Payment
For example, let’s say you want to buy a car with a sticker price of $20,000. If your trade-in is worth $3,000 and you make a $5,000 down payment, the remaining amount, i.e. the loan amount, would be $12,000.
A lower loan amount generally means lower monthly payments. If you’re aiming for a low monthly payment, you can buy a car with a low sticker price, do your best to negotiate a good value for your trade-in, and/or make a sizeable down payment.
There can be a few wrinkles, however. If you financed the purchase of the car that you’re going to trade in, you’ll have to account for the amount you still owe on that loan. Returning to our example, let’s say your trade-in is worth $3,000 but you still owe $2,000 on its loan. The net worth of the trade-in is now just $1,000, so your new loan amount would need to be $14,000.
It’s also possible to be “upside down” on your existing loan, meaning you owe more than the car is worth. You can check the approximate value of your trade-in on sites like Kelley Blue Book or Edmunds, and you can find out what you owe on the loan by asking your lender for the payoff amount.
Additionally, you might have the option to finance a maintenance package or an extended warranty—either of which would increase the loan amount (and monthly payment).
2. Interest rate
Auto loans commonly have fixed interest rates, which means your rate stays the same throughout the life of the loan. The interest rate on your loan is heavily influenced by your credit profile: Lenders tend to reward borrowers they see as less risky with lower interest rates; riskier borrowers are offered loans with higher interest rates. A lower interest rate can make your monthly payments lower.
To assess your risk level (or “creditworthiness”), lenders usually look at your credit report and credit score to see if you have a history of being a responsible borrower. They’ll also take into account your income and other expenses to see if you can comfortably manage more debt.
Your down payment also matters. Let’s say you’re buying a car with a $20,000 sticker price but you don’t have a trade-in and you’re only going to put $3,000 down. Your loan-to-value ratio would be 85%. If you put down $10,000, your loan-to-value ratio would be just 50%. Interest rates are typically lower for loans with lower loan-to-value ratios.
Tip: Shop around for the best interest rate. While it might be convenient to buy your car and get financing at the same place, dealer-arranged financing often comes with higher interest rates. Check with multiple lenders and compare offers to find the best loan terms for your financial situation.
Lenders also consider the age of the car you’re buying. Data shows, interest rates for used cars are generally higher than for new cars. There are several reasons for this dynamic, including manufacturer incentives for new car loans and greater risk that a used car will fall into disrepair.
3. Repayment term
Auto loans are generally available for terms of two to seven years (24 to 84 months). Assuming all other variables are constant, a loan with a longer term would have lower monthly payments. Lenders, however, often offer lower interest rates on loans with shorter terms because there’s less risk your ability to make payments will change over the shorter time period. As such, a longer loan term could mean you’ll have lower monthly payments but pay a larger amount of interest over the life of the loan.
Tip:Refinancing could lower your car payment. If you aren’t happy with the terms of your current loan, consider refinancing. You could be eligible for a lower interest rate and/or longer term, which could lower your monthly car payment.
Could refinancing be right for you? At LendingClub, our online process makes refinancing easy and fast. Check your rate in minutes and instantly see the offers that you qualify for.
2This equation is intended to be illustrative. Your actual loan amount may include additional items such as taxes and fees.