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Average Monthly Car Payments: Explained

7-Minute Read
Published on May 16, 2023
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The average monthly car payment for new cars hit $730 in the first quarter of 2023, according to research from Edmunds. That figure stood at $551 for used cars. Those are significant monthly payments and could drain your savings if you don’t budget properly for the financial responsibility of owning a car.

Before buying a new or used car, it’s important to study your household budget to determine how large of a monthly payment you can afford. If you don’t, you could fall behind on your payments, with your lender eventually repossessing your car.

Here is a closer look at how large your monthly car payment might be and the steps you should take to avoid a monthly payment that you can’t afford.

How Much Is An Average Monthly Car Payment? 

Monthly car payments have been on the rise, thanks to the increasing cost of new and used cars and rising interest rates, according to Edmunds.

Edmunds reported that the average annual percentage rate on new financed vehicles in the first quarter of 2023 rose to 7%. That's a big jump from the average rate of 4.4% in the first quarter of 2022. That 7% interest rate is also the highest average rate that Edmunds has recorded since the first quarter of 2008.

It’s important to note that the higher your car loan’s interest rate is, the higher your monthly payment will be.

And that average monthly payment of $730 on new cars that Edmunds recorded in the first quarter of this year? That's the highest this figure has ever been and is also a big jump from the average of $656 in the first quarter of 2022.

Edmunds also reported that 16.8% of consumers who financed a new vehicle in the first three months of this year took on a monthly payment of $1,000 or more; another record-setting number. Edmunds reported that only 10.3% of consumers who financed a new vehicle in the first quarter of 2022 took on monthly payments that high.

You do have some control over your monthly payments, though. For example, you can lower your monthly car payment by coming up with a larger down payment. The more money you put down when buying a car, the lower the amount you’ll have to finance.

Say you are buying a car that costs $22,000. If you come up with a down payment of $3,000, you’ll only have to finance $19,000. If you only come up with a down payment of $500, you’ll have to finance $21,500, which will leave you with a higher monthly payment.

You can also lower your monthly payment by building a strong three-digit credit score. The higher your score, the lower your interest rate, which will reduce your monthly payment. You can build a good credit score by paying your bills on time each month and paying off your credit card debt.

What Determines Your Monthly Car Payment? 

As with any loan, several factors will determine the size of your monthly car payment:

  • Credit score: Lenders consider your three-digit credit score when you apply for an auto loan. This score summarizes how well you’ve managed your credit and paid your bills in the past. The higher your credit score, the more likely you are to qualify for an auto loan with a lower interest rate, which will give you a lower monthly payment. Many lenders use the FICO® Auto Score, which ranges from 250 to 900.  Though it varies by lender, most consider a FICO® Auto Score of 700 or higher to be good, and one that will boost your odds of a lower interest rate and monthly payment.
  • Loan amount: The larger your auto loan, the larger your monthly payments tend to be. If you take out a 5-year auto loan of $20,000, you’ll pay less each month than if you took out a 5-year loan for $40,000. That’s because you’ll have to pay off a greater amount of your loan’s principal balance each month to pay off your loan in 5 years when you are borrowing a larger amount.
  • Loan length: You have flexibility when it comes to the length of your auto loan, though. Car loans tend to come with terms ranging from 36 months (3 years) to 72 months (6 years). The longer your term, the less you’ll pay each month. That’s because you won’t have to pay off as much of your loan’s principal balance with each monthly payment. Be aware that if you take out a car loan with a longer term, you will pay more in interest, making your car loan more expensive.
  • Interest rate: The lower your interest rate, the lower your monthly payment. To qualify for a low rate you’ll need to build a strong FICO® Auto Score. To do this, pay your monthly bills on time and pay down as much of your credit card debt as you can.

How Your Credit Score Affects Your Average Monthly Car Payment

Looking for a way to boost your odds of having a lower monthly car payment? Build a strong credit score.

The higher your three-digit FICO® Auto Score, the lower your monthly payment will usually be. That’s because lenders reserve their lowest interest rates for borrowers who have the strongest credit scores.

Lenders often place borrowers in certain categories depending on their credit scores. According to the fourth quarter 2022 State of the Automotive Finance Market report from Experian™, borrowers with FICO® Auto Scores of 300 to 500 are considered "deep subprime" borrowers and will struggle to qualify for auto loans.

Borrowers with scores of 501 to 600 are considered "subprime," while those with scores of 601 to 660 are considered "nonprime." Borrowers with scores in this range will be hit with higher interest rates if they qualify for an auto loan.

Prime borrowers are those with scores of 661 to 780, while "super prime" borrowers have FICO® Auto Scores of 781 to 850. Borrowers in these categories usually qualify for lower interest rates, with those in the "super prime” category typically earning the lowest interest rates.

Average monthly car payment by credit score:

Credit Score

New Car Average Monthly Payment

Used Car Average Monthly Payment

300 to 500

$700

$524

501 to 600

$746

$542

601 to 660

$753

$541

661 to 780

$723

$519

781 to 850

$683

$505

Source: Experian™ State of the Automotive Finance Market Fourth Quarter of 2022

How Loan Terms Affect Your Car Payment

Your monthly car loan payment will be higher if you take out a shorter-term loan. In general, the longer your loan’s term, the lower your monthly payment.

That doesn’t mean that a long-term auto loan is the best choice. Yes, your monthly payment will be lower, but you’ll also pay far more in interest over the life of your auto loan if you take out a longer-term loan. Overall, a shorter-term auto loan, then, costs less overall.

You’ll need to determine whether a lower monthly payment or paying less in interest is more important to you.

The chart below can give you an idea of how much you’ll pay each month and in interest depending on your auto loan’s term:

Loan Type

Loan Term

Monthly Payment

Total Interest Paid

$15,000, 6% interest

60 months

$290

$2,400

$15,000, 6% interest

48 months

$352

$1,909

$15,000, 6% interest

36 months

$456

$1,428

How Your Interest Rate Affects Your Average Monthly Car Payment

Your goal when taking out an auto loan? Nab the lowest possible interest rate.

That’s because a higher interest rate results in a higher monthly payment. The key to getting a lower interest rate, again, is to build a strong three-digit FICO® credit score. Do that by paying your bills on time and cutting down on your credit card debt, and you’ll increase your chances of landing a lower interest rate.

Here’s a look at how your interest rate could impact your monthly car payment:

Loan Type

Interest Rate

Monthly Payment

$20,000, 48-month term

10%

$507

$20,000, 48-month term

8%

$488

$20,000, 48-month term

4.75%

$458

Additional Car Costs

Loan payments aren’t the only cost of owning a car. You’ll face several other costs for that new or used vehicle, including: 

  • Scheduled maintenance: During the life of your car, you’ll need to pay for oil changes, tire rotations and tune-ups. How much will this cost? That depends on the age of your car and its make and model. But AAA has estimated that you should expect to pay $792 a year for regular maintenance on your car.
  • Insurance: You’ll need to purchase an auto insurance policy if you want to drive in the United States. Bankrate reported in May 2023 that the average cost of full auto insurance -- which includes comprehensive, collision and anything else your state mandates -- is $2,014 a year. The average cost of the minimum level of auto insurance you'll need is $622 a year. The cost of your auto insurance will vary depending on where you live, whether you have speeding tickets or accidents in your past, what type of car you drive and how many miles you log each year.
  • Repairs: Unexpected repairs are another cost of owning a car. How much you pay each year on car repairs varies on the age of your car, whether you can avoid accidents and how many miles you drive each year. Kelley Blue Book, though, says that in 2023 drivers are paying an average of $548.32 every time they take their car in for repairs. If your car repairs become too pricey, consider taking out a personal loan to cover them.

The Bottom Line

As the costs of new and used cars continue to rise, so do the monthly payments that come with auto loans. Make sure before you purchase a car, that you can afford your monthly payment. Buying a car is just the start of the expenses involved in owning a vehicle, too. You’ll also have to pay for regular maintenance, such as oil changes and rotating your vehicle’s tires, and sometimes costly emergency repairs. If you need a large chunk of cash to cover the cost of auto repairs, you can apply for a personal loan from Rocket LoansSM.

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Dan Rafter

Dan Rafter has been writing about personal finance for more than 15 years. He's written for publications ranging from the Chicago Tribune and Washington Post to Wise Bread, RocketMortgage.com and RocketHQ.com.