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It’s no secret that the cost of purchasing new and used cars has skyrocketed in the past couple of years. The increase in auto prices has led to record-high monthly car payments for Americans.
According to Experian’s Q4 2023 State of the Automotive Finance Market report, the average car payment was $738 for a new car and $532 for used cars. These figures are crucial for understanding the current car financing landscape.
While several factors will influence the car payment you receive, the average payments can serve as a good baseline as you start the car loan shopping process.
What Determines Your Car Payment?
Before we dive into the details, we should get a high-level understanding of what determines your car payment.
- Loan amount: How much you need to borrow to purchase your car will be a major factor in your monthly loan payment. The more expensive the car, the greater your monthly payment will likely be.
- Loan terms: Most lenders will allow you to choose a loan term between 24 and 84 months. The shorter the term, the larger your monthly payment will be.
- APR: Most car buyers look at interest rates when shopping for an auto loan. You should actually pay closer attention to the APR they have listed. This number includes the interest rate and the fees included with the loan. This will give you a better idea of the total cost of borrowing.
- Credit score: Your credit score is going to have a direct impact on the interest rate you qualify for. Lenders typically offer lower interest rates to people with higher credit scores because they’re lower risk.
- Type of car: Not only are used car prices lower than new car prices but your interest rate will also be influenced by the type of car. Some lenders offer higher interest rates on used cars.
- Where you buy the car: If you buy your car through a private seller, you may receive a higher interest rate than at a dealership.
Averages Based on Different Factors
Earlier, we told you the average car payment for both new and used vehicles, but let’s break those numbers down a little further so you can better assess how your situation compares to the averages.
| Factor | New Car | Used Car |
| Monthly Payment | $738 | $532 |
| Loan Amount | $40,366 | $26,685 |
| Loan Term | 67.87 months | 67.40 months |
| Interest Rate | 7.18% | 11.93% |
| Credit Score | 743 | 684 |
How Your Credit Score Will Impact Your Monthly Payment
Beyond your loan amount, your credit score is the most significant variable in how much you’ll pay monthly for your car payment. Your credit score will directly impact the interest rate for which you qualify.
The better your credit score, the better your interest rate will be. This means a lower car payment.
Let’s look at the average car payments for new and used cars based on credit scores.
| Credit Score | Average Car Payment for New Cars | Average Car Payment for Used Cars |
| 300 – 500 | $740 | $533 |
| 501 – 600 | $774 | $548 |
| 601 – 660 | $782 | $547 |
| 661 – 780 | $747 | $526 |
| 781 – 850 | $703 | $515 |
How to Lower Your Monthly Payment
If you’ve found the perfect car, but the monthly payment is outside your budget, you’ll need to take the necessary steps to lower the monthly payment amount.
Let’s take a look at a few ways you can go about reducing the monthly payment:
Borrow Less Money
The easiest way to lower your monthly payment is to borrow less money. There are several ways this can be accomplished. Here are a few:
Use a larger down payment
By saving up a larger down payment, you’ll need to borrow less money to afford the car you really want.
Consider a different model
Most people would love to have all the bells and whistles on their car, but these come at a cost. While you don’t need to switch the type of car you’re purchasing, you can opt for a different trim package.
For example, if you want a Nissan Armada Platinum, you could buy the SL version instead. This alone could reduce the cost by thousands of dollars.
Buy used
It’s well known that cars depreciate in value as soon as you drive them off the lot. Instead of purchasing a brand new car, you could look for something two or three years old.
Depending on the make and model, this can save you significant money.
Negotiate price based on the dealer price
Most people negotiate the price of a new car based on the sticker price, which leaves money on the table. Instead, negotiate based on the true cost of the car, which is how much the dealer actually paid. Knowing this number can further lower the sales price, reducing how much you’ll need to borrow.
Lower Your Interest Rate
You can also lower your monthly payment by reducing your interest rate. There are several different ways to do this.
Increase your credit score
By increasing your credit score, you’ll prove to lenders that you’re a well-qualified borrower, giving them a reason to offer a lower interest rate. So, now you’re probably wondering what you can do to improve your credit score.
It starts by making your payments on time each month and reducing the balance on your credit cards. Accomplishing these two things will go a long way to raising your credit score.
Shop around for lenders
Similar to getting a mortgage, shopping around and comparing what lenders offer is essential. Pay close attention to the APR and not the interest rate.
One lender might be willing to offer a much lower interest rate, but if their fees are high, it could make the offer less attractive. By finding a lender that will reduce your borrowing costs, you can reduce your monthly payments.
Understanding Your Car Payment Amount
We’ve outlined how much the average person pays monthly for their car payment. This is a good way for you to compare yourself against others.
However, before you start looking to purchase a new car, it’s important to understand what your cost might be to determine whether the car you had in mind will be within your budget.
Refi.com has an auto loan calculator that will tell you how much your monthly loan payments will be based on the loan amount, interest rate, loan term, and other factors. By playing around with this, you’ll be able to find out how much car you can afford.