America's total auto debt is growing faster than ever, so it's no surprise that the average monthly car payment is rising as well. Although this trend raises some concerns as borrowers fall behind on payments, taking on a car loan can still be a smart choice if done correctly. An auto loan on an affordably priced vehicle can get you the transportation you need and even help improve your credit score as you pay it off. Learn what the average car loan payment is for new and used cars, the variables that impact the monthly payment, and how to score a lower car payment the right way. 

The Average Monthly Car Payment

monthly car loan payment

As new and used car prices are surging, it's becoming clear that car shoppers are choosing to take on more debt instead of downsizing their vehicle purchase. According to data from Experian, the average monthly car loan payment in the U.S. as of last year was $554 for new vehicles and $391 for used. The total average amount borrowed for a new car was $30,977 and $19,861 for used. 

These sky-high auto loan averages are a sign of the times. Americans currently owe a cumulative $1.2 trillion in auto loans (an increase of 75% since 2009 and the highest in our history) and at least 7 million Americans are seriously delinquent on their car payments. The good news is that the average car loan payment isn't necessarily what you'll have to pay for a vehicle since the factors that impact a monthly payment vary on an individual basis. 

What Factors Into Your Car Loan Payment?

checking credit score

Although we advocate for looking at the total cost of financing a vehicle instead of just the monthly payment, it's important to understand how your car loan payment is determined and to make sure it will fit into your budget. When buying a vehicle, the monthly payment varies depending on whether the vehicle is new or used and its total purchase price as well as the down payment, APR rate, and loan terms.

The total amount financed is determined by the purchase price of the vehicle plus taxes, minus the down payment, and a trade-in if you have one. If you choose to purchase GAP insurance, warranties, and other add-ons, you'll need to factor that cost into the total amount.

Next, you'll need to consider the length of the auto loan. The longer you stretch your car loan terms, the lower your monthly payment will be, but there are serious risks to this strategy, including higher interest rates and a higher probability that you'll be upside down on your car loan. Finally, you'll have to consider the interest rate on the loan which is determined by your credit score and debt-to-income ratio among other factors. As of 2019, the average car loan interest rate ranges from 5.3% for good credit to 21.10% for subprime lenders with scores under 560. 

How to Get a Lower Car Payment 

car loan down payment

If paying nearly $600 a month for a car doesn't fit into your budget, all hope is not lost. You can keep your monthly car payments well below the average and protect your finances by being strategic with your car purchase. Stretching out your car loan to 84 months is one way to lower your car payment, but we don't recommend this route. The best strategy to keep payments reasonable is to choose an affordable vehicle. Oftentimes this means going with a used car instead of new, or forgoing a large truck or SUV in favor of a smaller, more efficient vehicle. 

Saving up for a substantial down payment will also help lower your monthly payments. Not only will it reduce the overall financing costs, but it can reduce your interest rate and even help you get approved with less than perfect credit. Shoppers with bad credit can find lower interest rates by improving their credit scores, enlisting a cosigner, and getting pre-approved from several lenders to choose the best rate. 

Find a Great Rate on Your Car Loan Today