How To Cut Auto Costs As Some Monthly Payments Top $1,000

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Car payments have long been part of household budgets, but with soaring prices and rising interest rates, many owners are now facing something new, payments of more than $1,000 a month.

“The share of consumers who financed a vehicle with a monthly payment of $1,000 or more reached a new all-time peak of 17.1% in Q2,” according to Edmunds, an auto guide and research publisher. That’s up from 4.3% four years ago. 

Edmunds also reported that in the second quarter the average monthly payment reached a record high of $733. If you have a two-car household, monthly car payments can easily top $1,500.

Higher auto payments impact credit scores and debt-to-income (DTI) ratios, two measures closely watched by auto and home lenders. Lower credit scores mean higher interest rates and bigger monthly payments.

Bigger payments can lead to a steeper debt-to-income ratio, making credit harder to get, and – in some cases – even forcing lenders to decline home mortgage applications and other financing.

Car Sales Fell in 2022. Are Prices Next?

New light-vehicle sales declined 8.2% to 13.7 million units in 2022, according to the National Automobile Dealers Association (NADA). While some sale drop-offs can be attributed to such factors as semiconductor shortages and supply-chain bottlenecks, NADA says inventory levels in December 2022 were 49% higher than in 2021.

In effect, there are plenty of new vehicles to buy, a situation likely to create lower prices. Tesla’s sales, for example, rose 5% in the second quarter after several price reductions. To keep market share other manufacturers may follow suit.

Better Credit Equals Lower Cost 

Check your credit reports at before car hunting. You can get one free report each week from Equifax, Experian, and TransUnion through the end of December.

Make sure out-of-date items and errors are removed before applying for an auto loan.

The interest rate you pay for auto financing is closely tied to credit standing. Experian divides credit into five bands.

You want to have Super Prime (a credit score from 781 to 850) or Prime credit (661-780), and you very much want to avoid Nonprime or Near Prime (601-660), Subprime (501-600), and – most of all – Deep Subprime (300-500).

Experian reports that new car financing in the first quarter was available at 5.18% for Super Prime borrowers and 6.4% for Prime. Rates, however, are sharply higher for Deep Subprime (14.08%), Subprime (11.53%), and Near Prime (8.86%).

In effect, Prime borrowers are paying less than half the interest rate charged to those with subprime credit.

Work From Home & Auto Costs

Today there are an estimated 275 million cars and trucks in the US, but maybe we need fewer vehicles as a result of the Covid pandemic. It created many changes, including how many of us deal with jobs: Do people need to work from central office facilities when many jobs can now be done online and from home?

And if people work from home, can they get by with one less car and smaller costs for monthly payments, maintenance, insurance, and fuel?

The Back To Work Barometer from Kastle Systems shows that office occupancy in 10 major metro areas is now at about 50% compared with 99% in February 2020 before Covid took hold.

One reason for reduced office occupancy is that more people simply work from home. According to the Census Bureau, “Between 2019 and 2021, the number of people primarily working from home tripled from 5.7% (roughly 9 million people) to 17.9% (27.6 million people).”

These workplace changes can lead to reduced transportation needs. While an additional car is a great convenience, it may be less necessary for those who can work from home. That, in turn, means lower monthly costs. 

Pricing: New Versus Used Vehicles

Used car prices – on average – are far cheaper than new purchases. Kelley Blue Book (KBB) estimates that the typical new car was priced at $48,528 in May versus used vehicles, cars generally priced at $31,951 during the same month, according to, a used car shopping app. 

However, there’s more than price to consider when looking at new and used vehicles.

Used cars are a huge business, an obvious alternative to new cars, SUVs, and other vehicles. CarMax, a nationwide used-car retailer, for example, bought 343,000 vehicles for resale in a recent quarter.

New cars come with warranties and no worries about past maintenance or use, but what about used cars? Some are in great condition, others not so much. 

Warranties can be helpful but you have to ask about specifics. How long does coverage last in terms of miles and times? How much are deductibles? What is the maximum coverage amount? Can you go to any repair facility? Etc.

Odometer fraud is a major issue with used cars. Carfax estimated in December “that more than 1.9 million vehicles on the road have rolled-back odometers, a 7% increase from the previous year.”

The company says that a rolled-back odometer typically costs buyers $4,000 in lost value.

“All things being equal,” said Carfax, “a higher mileage vehicle typically commands a lower price on the used market, and once the actual odometer reading becomes known, your car’s value is reduced.”

How to protect yourself? Have a used vehicle inspected by a mechanic you trust before being obligated to buy. Also, get a car history based on the vehicle’s VIN number.

Peter G. Miller

Peter G. Miller is a nationally-syndicated columnist, the author of seven books published originally by Harper & Row (including one with a co-author), and has contributed to leading online sites and major print publications. He has appeared on numerous media outlets including the Today Show, Oprah!, CNN, and NPR.

Peter has been an accredited correspondent on Capitol Hill and a member of the White House Correspondents Association. He has served with the District of Columbia National Guard and holds both BA and MS degrees from The American University in Washington, DC. View Peter on LinkedIn.