How to tell if a monthly car payment is actually a good deal

If you’re ever looking for a demonstration of the adage “it’s expensive to be poor,” consider buying a car. If you have your eye on a car that costs US$35,000 ($48,587) with all expenses included, and you have US$35,000 ($48,587) in your bank account, this is what you pay for the car. If you don’t Lay out the money, say you deposit US$5,000 ($6,941) and fund the remaining US$30,000 ($41,646) with a five-year loan with an annual percentage rate (APR) of 6, 9%. You will end up paying US$5,557.29 ($7,715) in interest – this means, including your down payment, that your US$35,000 ($48,587) car will cost you US$40,557.29 ($56 $302).

What is really Incredible about this example is the fact that the monthly payment on this loan (US$592.62 ($823)) is actually relatively low these days. What was once rented out on a one-bedroom apartment is now an attractive monthly payment for a car you don’t even own. A growing number of new-car buyers are actually paying US$1,000 ($1,388) a month for their rides, which is… a lot.

But is it too much? Buying a car is often a pressure cooker experience with salespeople throwing numbers at you. Meanwhile, new car prices are at an all time high with an average price of US$47,000 ($65,245) (up 12.6% from last year) – and don’t we not even get started on used car prices, which defy rational numbers. Most people need to finance their car, but they often view car loans the wrong way. So how much is too much for a monthly car payment?

Focus on the total cost

Before determining if your monthly payment is too high, it’s worth pointing out that focusing on the monthly payment is usually a mistake. Of course, you have to make sure you can actually come up with the money each month, so this is a necessary and useful number. But you should focus more on the total cost of the loan. Salespeople often manipulate other aspects of a car loan to lower monthly payments, making it seem like a better deal. In other words, you might get zero interest and they might overcharge you for the car, but since they added two years to the term, the monthly payment seems doable.

This technique essentially hides the fact that you’re getting ripped off, so it’s essential that you make the monthly payment just one data point to consider when financing a car. Not only does a longer term on your loan hide the overall cost of the car, but new cars lose value so quickly that the term shouldn’t exceed five years or you risk going “under water”, the cheaper car. than what you owe on it.

The average payment for a car

The national average monthly payment for a car is now between US$650 ($902) and US$700 ($972) per month. There are many reasons for this: supply chain issues have driven up the cost of the car itself, and the Federal Reserve has raised interest rates in an attempt to stifle inflation.

The monthly payment depends on the APR of the loan, and the interest rate you get has everything to do with your financial history and credit score. Interest rates range from 2.4% for people with solid gold credit scores above 780 to 14.76% for people with credit scores like a batting average. This has a huge impact on the total cost of your loan and therefore the size of your monthly nut on the car.

Of course, an average is just that – an average. You can find car deals with monthly payments well below the average US$650 ($902), especially if you ignore our sage advice and opt for a longer term on your loan – say, if you’re willing to accept a six-year loan. you can get your monthly payment below US$300 ($416) in many cases. But you can avoid these long-term agreements. Keep in mind that these offers generally assume a great credit rating, and rates and offers expire, so the details of these new car offers are subject to change:

  • 2022 Nissan Sentra. This popular compact isn’t fancy, but it doesn’t come with a fancy price tag either. With an MSRP under US$20,000 ($27,764), you can find 1.9% APR financing with a 36-month term. If you fund US$15,000 ($20,823), your monthly payment will be around US$430 ($597).
  • 2022 Chevy Equinox. Brand new with basic features, this small crossover SUV can be purchased with US$0 ($0) down and US$515 ($715) per month on a 72 month term and 2.49% APR; but deposit US$5,000 ($6,941) and shorten the term to 60 months, and the payout would be US$492 ($683) at 0% interest.
  • Chevrolet Spark 2022. Another car under US$20,000 ($27,764), this sedan can be purchased with US$0 ($0) down and US$345 ($479) per month at 2.49% APR. Deposit US$5,000 ($6,941) and the monthly payout is just US$257 ($357).

A note on 0% financing: Many automakers offer 0% financing, and there’s nothing wrong with that. Just keep in mind that this usually means you’ll be charged more for the car, either with a bundle built into the MSRP or with extras you can’t take out of the deal. It’s not exactly a scam, but it’s another misdirection often used when selling cars. Whether or not the deal works out for you depends on those monthly payments and the total cost of the car once you factor everything in.

As you can see, the deals are there, and if you need to keep your monthly car payment well below the national average, you can take it out – assuming you have good credit and the money to spare. to file.

About Matthew R. Dailey

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