The average new car payment surged to $725 per month at the beginning of 2023, compared to an average of $650 per month throughout all of 2022, according to Experian’s State of the Automotive Finance Market Report for Quarter 2 of 2023.
While some of this spike is due to the increasing costs of new vehicles, today’s higher monthly payments are also the result of higher interest rates that make every loan payment more expensive.
Consider these tips to help you steer clear of financial headaches and be money smart with your vehicle.
- Don’t finance a car for more than 60 months. If the average car payment of $725 per month comes as a surprise, consider that the average new car loan lasts 68.84 months, per Experian. To avoid overextending yourself, consider a limit of 60 months or less.
- Get your credit score in the best possible shape. Interest can make up a huge chunk of your monthly car payment. This is especially true for individuals with lower credit scores. Experian data shows that new car buyers with the best possible credit rating paid a rate of 5.18% for new vehicles during Q1 of 2023, whereas those with subprime credit paid 11.53% and buyers with deep subprime credit paid 14.08%.
- Buy used. According to Kelley Blue Book, the average new car depreciates by approximately 20% during its first year. Let someone else take this hit and instead invest in a used car that still has bumper-to-bumper warranty coverage.
- Watch out for the hidden costs of buying a car. Watch out for hidden fees when you shop around for auto financing, including auto loan origination fees. Auto dealers may also try to tack on additional fees to each sale, including documentation, advertising, and reconditioning fees.
Don’t let the allure of new vehicles tempt you into signing up for a lifetime of exorbitant monthly car payments. Make sure your credit is in good shape, buy used, watch out for hidden fees and choose a repayment term that is manageable.