auto loans

We are going to show you exactly what you should expect to pay for a new and used average monthly car payment.

When seeking a car loan, smart buyers should always pay close attention to the price and interest rates.

Why are interest rates and prices important?

An expensive car means high monthly car payments due to the principle which could be a killer for your budget. The interest rate determines how long it will take you to repay the loan. It also has a direct effect on your monthly installment.

Why do most people want to know about the average car monthly payment? Because car buyers don’t want to sign up for a repayment plan that they can’t afford.

Some more helpful reading:

• How to Create a Healthy Budget for Your Car Loan
• How to Lower Your Monthly Car Payment
• How to Payoff Your Car Loan Early

1. New car average payment

Experian– a leading researcher in consumer and business credit habits nationally analyzed over four million car loans issued. The study reveals that an average buyer spends at least $31,000 on a new car. You’ll also notice that customers who recently purchased brand new cars prefer the 60-month repayment period.

According to Experian’s car loan research, the average new car monthly payment is $515. Remember, Experian analyzed over four million auto loans and this makes their findings highly credible. On the other hand, one should consider that people with average or excellent credit scores receive more auto loans than those with poor credit ratings. Despite the availability of bad credit car financing, very few car dealerships sell new cars to consumers with subprime credit ratings.

Tip: Can You Buy a New Car with a Credit Card?

2. Used car average payment

The Truth is, most employed people cannot afford new cars due to high taxes and rising interest rates. That’s why used car sales exceed new ones by a huge margin. Did you know that 40 million used cars get bought every year? Only 14 million brand new cars get sold in America annually. In other words, new car sales only account for 25% of the market.

Tip: Avoid These Top Car Buying Scams or Lose $1000’s!

If you have average or excellent credit ratings, you should expect to pay at least $385 each month for a used car payment. Why? Because the average price of a used car is $19,800. Perhaps this figure seems a bit high, but according to Experian, consumers want to buy used cars that are still hot in the current market. People want to enjoy modern features that are relevant in today’s market due to several reasons. For instance, doing trade-ins in order to save money on the next car purchase.

Tip:

• Should I Finance a Car or Pay Cash?

3. Which external factors determine how much you should pay monthly for a car?

External factor refers to the forces outside your control that directly affect car prices.

1. Interest rates

Interest rates tend to rise after every three years due to inflation. In 2015, the average new car monthly payment was $483. Three years later, this amount has increased by $40 and is expected to continue rising. If you bought a used car in 2015, you’d expect to pay $361. In 2018, used car owners with average or excellent credit scores pay $385 per month.

When interest rates rise significantly, car financing gets costly because one has to pay a higher portion of the principle. For instance, if you buy a new car worth $20,000 at an interest rate of 12% over a repayment period of 60 months, your monthly payment should be $445. How much will you pay if the interest rate rose to 16% and other factors remain constant? $487.

2. Inflation

What is inflation? It refers to a general rise in the prices of goods and services within a specified period. Bad economic performance such as busts and recessions increases the rate of inflation because the dollar suffers lowered purchasing ability. That’s why people end up spending more money on commodities in order to compensate for the loss of purchasing ability.

Tip: How to Create a Healthy Budget for Your Car Loan

A high inflation rate directly affects car prices because dealerships have to spend more money on purchasing inventory. In order to recoup their capital and still make good profits, car dealerships increase the prices of both new and used motor vehicles.

3. Dollar’s performance in comparison to major global currencies

When the economy is doing great, the rate of export exceeds imports. The country earns more money than it spends and this boosts its currency’s purchasing ability. Is this a good thing? Yes, it is because we spend less for the same amount of goods and services.

What happens when the rate of import exceeds that of export? It puts the economy in a bad place because we have to spend more money to afford the same amount and quality of commodities. How does this affect car prices? Auto dealerships are forced to spend more money to import vehicles and auto manufacturers have to deal with rising costs of production.

4. New government policies

If you’ve observed the automobile industry in the past decade, you’ll realize that there’s a massive shift to environmentally-friendly vehicles. It’s not just a mere trend because more and more people are ditching gasoline-powered cars in favor of biodiesel and electricity ones. Even global oil producers have changed the composition of car fuels in order to comply with international carbon emission standards.

The government imposes a high tax on cars manufactured more than five years ago because they’re not compliant with recently passed environmental standards. This tax increases car prices because sellers have to share the tax burden with their customers. A high price requires plenty of time to repay it.

5. A rise in Sales Tax

Each state has its own sales tax. In Louisiana, residents pay 10% while in New Jersey, it’s just 6.62%. Each product you come across in the market already has sales tax included in its price. It’s almost impossible to avoid paying for it. Even if you buy a car from a private seller such as a friend or relative, you’ll still pay tax at the DMV in order to get the car title switched to your name.

If your state government decides to increase sales taxes by a huge margin, all local car dealerships will adjust their prices upwards. Why? Because the rise in sales tax affects profit margins.

6. A rise in the prices of imported cars

Despite the existence of highly reputable local auto manufacturers, there’s a huge demand for foreign vehicles.

High-end buyers prefer driving luxury brands recognized internationally to enhance their status symbol. First-time car owners or newly hired employees go for Honda Accords and Toyota Camrys because they’re highly affordable and have low gas consumption rates.

If Europe experiences a severe economic crisis, inflation rates rise and this affects the costs of manufacturing cars. Car dealerships will sell their cars at higher prices due to increased costs of purchasing and shipping each vehicle to the local market in America. Why? Because absorbing all the increased costs affects the dealership’s profits.

4. How to prepare yourself for an affordable monthly car payment

1. Use a car loan calculator

A car loan calculator helps buyers to determine monthly payments that suit their budgets. You simply enter the auto loan’s value, down payment, interest rate, and the repayment period. It’s advisable to always use the car loan calculator before applying for an auto loan in order to avoid committing yourself to costly monthly payments.

The car loan calculator also helps you to confirm whether the payments printed in your repayment plan are correct. It’s possible that your credit lender might have made an error in their calculations. You don’t want to pay an overcharged loan because it affects you financially and has no effect on your credit ratings.

2. Prepare a decent down payment

Since car financing is a form of secured debt, credit lenders expect you to show commitment by paying a down payment. Doing this enables you to drive home in your new car, however, the title remains with your creditor. It also determines your monthly installments by reducing your auto loan’s outstanding balance.

Make sure you save at least 40-50% of the car’s price before applying for a car loan. This enables you to get a good monthly payment because you can choose a short repayment period. The shorter your repayment period, the less interest you pay.

3. Pick a car that you can afford

One reason why some buyers default on their car loans is irrational purchase decisions. How? By purchasing a motor vehicle that’s beyond one’s financial ability. It makes no sense to buy a new SUV worth $40,000 when one earns less than $5,000 per month. Even if you pay 40 % of the SUV’s price upfront, you won’t get monthly installments that are equal to or less than $500.

Tip: 7 Things Your Car Dealership Won’t Tell You About a Car Loan

Smart car buyers know that a loan’s principal determines one’s repayment period and installments. That’s why they always consult car loan calculators to assess how much down payment they need to get really affordable monthly installments.

4. Check your credit score

Car buyers with subprime credit ratings pay double or more interest costs compared to those with excellent scores. Credit lenders do this to recoup as much of their loan as possible because a poor credit score indicates a high risk of default. However, you don’t have to obligate to a bad credit auto loan because you’ll get better interest rates by taking some time to improve your ratings.

How to Improve Your Credit Score

How can you achieve this? You’ll need to borrow secured debts of small amounts then repay them on time. You might need to consult a qualified financial coach to help you pick the right debts in order to accelerate your improvement. It might take a year or two, however, the gains are worth it.

5. Buy your car when prices drop

Car sellers usually offer major discounts at the end of the month to attract potential buyers who’ve just received their paychecks. Why should you take advantage of such discounts? Because this discount reduces your auto loan’s principal by 20-30%. If you showed up with a 50 % deposit and happen to get a 30% discount, you’ll clear your auto loan in 36 months or less.

Newly established car dealerships usually offer huge discounts for the first three months of operation in order to create brand awareness. You’ll get a variety of fantastic car prices usually not available in older dealerships. That means paying lower interest costs on your car monthly payments.

Now you know!

The national average car monthly payment will keep on rising due to the six external factors you’ve read about in this post. The good news is that you can still pay $500 dollars every month by picking a new or used car that matches your income. If the current interest rates are too high for you, you can wait for a decrease or consider doing a cash purchase to avoid paying any interest.

Ready to Get a Loan? Here’s some Further Reading:

• Car Dealer in House Financing
• Self Employed Car Loans With Easy Approval
• Car Loans for Low-Income Earners and Bad Credit
• Negative Equity Car Loan

Other Tips:

To get used car loans

to get bad credit car loans

To get poor credit car loans

When in a dealership or when dealing with finance, it’s inevitable to hear some puzzeling words that need a little bit more explanation. This article will describe Car Loan Amortization and show you clearly how it works.

What is Car Loan Amortization?

Amortization is a process where a loan is paid through previously arranged payments over a fixed period. The composition of the payments varies as the borrower pays both the principle and interest.

Therefore, a bad credit car amortized loan is one that has scheduled periods of payment applied to both their principal and interest. The amount you pay for the loan’s interest and the principal is different each month although the total payment made remains equal in each period. This is because the payment consists of parts that change over time.

Each payment portion goes towards reducing the balance of your loan and the interest’s cost.  Reducing your loan balance involves paying off the loan principal. A loan principal is an amount you are borrowing from the lender and the interest’s cost is the amount of money you are charged by the lender for the time you will have the loan.

Interest costs are at the highest at the beginning of the loan. This mostly happens in long-term loans. Hence, most of the payment that you make in the beginning is an interest expense thus a small portion of the balance is paid in this period. As you proceed with the payment more is taken to the principal each month and the interest is paid proportionately less.

The design of amortized loans allows you to complete the payment of the loan over a fixed period.  The last payment that you will make, will complete the amount remaining on your debt. Take an instance, you had an amortized loan to be paid in a fixed period of 20 years, after exactly 20 years, you will have completed the loan payment.

Reason Why Loans are Amortized

Amortized loans benefit both borrowers and lenders.

• The borrower benefits by having a consistent payment since the bank or the lender offers the same payment throughout the time the borrower has the loan. This is compared to cases when there are huge payments at the beginning and the reductions occur as one proceeds with the payment.
• The lender benefits from amortized loans as they will be in a position to get their profits on every loan at the beginning of the loan’s lifecycle. Hence, there will be no losses, in case the borrower becomes delinquent or when the borrower chooses to pay off the loan early before the fixed period.

An Amortization Schedule

An amortization schedule also known as an amortization table assists in helping you understand the amount you pay for the interest, how each payment you make affects the loan and knowing the debt remaining at a given time. This is beneficial because;

• Knowledge of the true cost of borrowing

With the amortization schedule, you have a detailed picture of the components of the loan. Therefore, you are aware of the interest’s costs rather than focusing on monthly payments. Many people focus on the monthly payment rather than interest costs. However, it’s wise to consider the interest’s cost as they are better at measuring the real cost of what you have purchased. In some cases, when there’s a lower monthly payment, you will end up paying more in interest for instance, when the repayment time is stretched.

• Assists in wise decision making

You’re able to choose which loan is considered when there are different terms by different lenders.  You get to know how much you could save when the interest rate is lower and how much you could save if you paid the debt early as you may end up skipping the remaining charges in most of the loans.

Loan calculator

You can get a car loan amortization table in several ways that include the following;

1. Create your own by hand
2. Utilize an online calculator that will build a table for you

• Create an amortization schedule using spreadsheets and assist in analyzing the loans

Among the three ways, most people find the online calculators and the online spreadsheets as the easiest to create an amortization table with. If you prefer not to create the whole model from scratch, you could copy and paste the online calculator’s output into a spreadsheet.

Knowledge of the monthly payment

This payment is based on the amount of loan, the interest rate and the fixed period to pay the loan. The three aspects affect your interest’s cost and how much you pay each month. When the interest rate is lower, it can decrease your payment, and you save a significant amount of money. When the period of the loan is stretched for a longer time, your payment will also be decreased, but you will pay more in interest over the loan’s lifespan.

To amortize a car loan using this table and follow the steps below.

1. Note your starting loan balance
2. Figure out the payment
3. Figure out the monthly interest charge
4. Get the principal you will pay that month by deducting the interest charge from the payment
5. Get the remaining loan balance by deducting the amount of principal paid
6. Start over with the following month.

Types of Loans That Are Amortized

• Auto loans

They are usually five-year or shorter amortized loans that are paid with a fixed monthly payment. Most people consider buying a car in monthly payment alone. As highlighted above, stretching the period of payment can increase the amount of interest you pay, therefore, in this case, your loan may exceed the car’s resale value.

• Home loans

Traditionally, they are 15 to 30-year fixed-rate mortgages. Nevertheless, most people refinance the loans or sell the loan to avoid keeping it for that long.

• Personal loans

These are obtained from a credit union, a bank or online lenders. They usually have fixed interest rates, fixed monthly payments and are often three-year terms.

Consider car loan amortization as it will guide you in the payment for the whole period and ensure that you have chosen a suitable and beneficial car loan.

Other Tips:

To get used car loans

to get bad credit car loans

To get poor credit car loans