A new car is a big purchase. It can be helpful to do some research ahead of time so you can know what to expect. This is especially true when it comes to the monthly payment for the car loan.
So, what is the average monthly car payment? And how do the payments work? Check out this helpful guide to better understand and plan for your car payments.
Breakdown of a Car Payment
It’s important to first understand the basics of a car payment and what things are included in this payment. Typically, a car payment is set up to be paid monthly per your loan agreement. The payment amount is determined by a variety of factors including loan amount, interest rate, and loan term or how long you’ll have the loan before paying it off.
The car payment covers two different components – principal and interest. The principal is the actual amount borrowed on the loan. The interest is the amount that you pay over time to the lender in return for allowing you to borrow the funds. The interest amount that you pay will be determined by the interest rate that you qualify for.
Each payment is broken down into a ratio of principal and interest. Initially, a higher portion of your payment will go towards paying interest on the loan. As the loan is paid down further over time, more of the payment will transition to paying off a higher portion of the principal balance.
You can request an amortization schedule from your lender to show the breakdown of payments for your specific loan. This scheduled is based on the minimum payment amount, so it may not be fully accurate if you make extra or larger payments on the loan. However, this can be a helpful resource in understanding your monthly payment.
Average Monthly Car Payment
Trying to anticipate or plan for a monthly car payment can be difficult, but it can be helpful to know the average car payment. Here at Wasatch Peaks, the average car payment is $450 per month.
It’s important to also consider that car payments can vary greatly between vehicles. While the average car payment can help you find a reasonable estimate, the payment for a brand-new truck will be a different payment than an older used car. Keep this in mind as you search.
A car loan calculator can be a great tool as well in anticipating your monthly payment. You’ll have the options to input the car loan amount, interest rate, and loan term to determine your estimated monthly payment. This also enable you to adjust the different options to find what works for your budget.
Tips for Lowering Your Payment
There are some ways that you can lower your monthly payment for your auto loan. This can help you better fit the payment into your budget.
Make A Higher Down Payment
It may mean that you need to save a little longer but making a high down payment when you initially purchase the vehicle can help lower your payment. The loan amount will be lower, and you may have more options available to adjust the payment.
Finance for a Longer Term
Choosing to extend your loan across a longer term will also lower your payment and give you a bit more flexibility. You will pay more in interest if you choose this option, but it may be worth it if you can find a payment that better fits your budget.
Find the Best Interest Rate
It’s important to shop around and find the best interest rate to help you save monthly on your monthly payment and throughout the life of the loan. You may even be able to find special offers for low interest rates. Keep in mind that your credit score will have an impact on the interest rate you can qualify for. You may need to build up good credit history to qualify for the best scores.
Refinance to Better Loan
If you already have an auto loan or are trying to build up your credit history, you have the option to refinance to a better loan option. If interest rates have gone down, your credit has gone up, or there are special offers available, refinancing your loan can be a great way to lower your payment.
Knowing the average monthly car payment can help you as you plan for your car loan. Utilizing a car loan calculator can also give you a realistic estimate for your specific situation. If you need assistance with your auto lower, our auto loan specialists at Wasatch Peaks are available to help online, in person, or by calling 801-627-8700. Keep in mind that there are many options available to help you lower your payment to better fit your budget.