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How do you know if a monthly car payment is really a good deal?

How do you know if a monthly car payment is really a good deal?

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If you’re ever looking for a demonstration 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, including all costs, and you have $35,000 in your bank account, which is what you pay for the car. like you do not have the money, let’s say you put down $5,000 and fund the remaining $30,000 with a five-year loan with a 6.9% annual percentage (APR). You end up paying $5,557.29 in interest – that is, inot counting your down payment, your $35,000 car will set you back $40,557.29.

What’s? For real unbelievable about that example is the fact that the monthly payment of that loan ($592.62) is actually relatively 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. An increasing number of new car buyers actually pay $1,000 a month for their rides, that isa lot.

But is it too much? Buying a car is often a stress-cooking experience with vendors throwing numbers at you. Meanwhile, new car prices are at record highs with a average price of $47,000 (upwards 12.6% in the past 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 look at car loans wrong. So how much is too much for a monthly car payment?

Focus on total costs

Before we get into whether your monthly payment is too high, it should be emphasized that focusing on the monthly payment is usually a mistake. Of course, you need to make sure that you can actually come up with the money each month, so it’s a necessary and useful number. But you should focus more on the total cost of the loan. sPeople will often manipulate other aspects of a car loan to make the monthly payments lower, making it seem like a better deal. In other words, you may be getting a mortgage interest and they may be charging you too much for the car, but since they added two years to the term, the monthly payment seems feasible.

This technique essentially hides the fact that you are being scammed, so it is essential that you make the monthly payment only one data point to consider when financing a car. Not only does a longer loan term hide the total cost of the car, new cars lose value so quickly that the term may not exceed five years or you risk going “underwater” when the car is worth less than what you owe it.

The average car payment

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

The monthly payment depends on the APR of the loan and the interest you get has everything to do with your financial history and your credit score. Interest rates range from 2.4% for those with a solid gold credit score above 780 to a dismal 14.76% for people whose credit scores resemble a batting average. That 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 just that: 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, such as if you are willing to pay a six-year loan that is possible get your monthly payment under $300 often. But you can avoid that long oneterm deals. kPlease note that these deals generally assume excellent credit and rates and offers expire, so the details of these new car deals are subject to change:

  • Nissan Sentra 2022. This popular compact isn’t luxurious, but it doesn’t come at a great price either. With a suggested retail price of less than $20,000 you will find 1.9% APR financing with a term of 36 months. If you fund $15,000 of that, your monthly payment will be about $430.
  • 2022 Chevy Equinox. Brand new with basic features, this small crossover SUV can be bought at $0 and $515 per month with a 72 month term and 2.49% April; but put down $5,000 and shorten the term to 60 months, and the payment would be $492 at 0% interest.
  • 2022 Chevy Spark. Another car under $20,000, this hatchback can be bought at $0 and $345 per month for 2.49% April. Put down $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. Keep in mind that this usually means being charged more for the car, either with an ingrained package on the suggested retail price or with extras you can’t get from the offer. This isn’t exactly a scam, but it’s another bit of deception commonly used when selling cars. Whether the deal works for you will depend on those monthly payments and the total cost of the car once you factor everything in.

As you can see there are deals and if you want to keep your monthly car payment well below the national average, you can get it done – assuming you have good credit and some cash to put down.