A vehicle is one of the biggest purchases you'll make, only behind a home or college education. This means that the car you choose can make or break your financial health. As car prices rise, Americans are taking out staggering amounts of auto debt to buy the vehicles they need (or think they need). It's no surprise that average monthly car payments are ballooning as a result. Learn what the average monthly car payments are for new and used cars, why high car payments can be risky, and how to calculate a car payment as a percentage of income. If you're in the market for a vehicle, this information can help you determine how much you can afford to spend.

Average Monthly Car Payment in the U.S.

monthly car payment usa flags

According to Experian's latest automotive data, car shoppers who took out auto loans for new vehicles borrowed an average of $35,228, which is up nearly $2,000 from the prior year. The average new car payment hit a record high at $576/month during the last quarter of 2020. Used car prices have also been climbing, hitting a record of $24,467, an increase of $1,700 from 2019. The average monthly payment for used vehicles was $413 which is the first time it has topped $400. 

As Credit Karma's graph shows, the average car payment has been rising for both new and used vehicles, but new vehicle payments have grown at a faster rate than used over the last few years. 

car loan payments rising
Monthly car loan payments are rising rapidly, but you can buck the trend. (source: Credit Karma) 

Average Car Payment by Credit Score

According to Lendingtree, there is a correlation between a borrower's credit score and the car loan amount. Car buyers who have good credit (661-780) take out an average of $36,386 for new cars and an average of $22,708 for used. Generally, the data shows that the lower a borrower's credit score, the higher the monthly payment which is likely due to higher interest rates. Car shoppers with Fair credit (601-660) were an exception with the highest average car payments of $594 for new cars and $407 for used.

(Source: Lendingtree)

What is Considered a High Car Payment?

monthly car payment scale

Since everyone's financial situation is unique, there is no one-size-fits-all car loan payment. You could claim that anything above the average monthly car payment is considered high, but we'd argue that even the average (which is closing in on $600) is too high for many car shoppers. Vehicle debt in the U.S. has nearly doubled between 2010 ($705 billion) and 2020 ($1.4 trillion). Not only is the risk of defaulting on the auto loan an important consideration, but there's also the opportunity cost of throwing money into a vehicle that depreciates quickly, instead of putting it into savings. 

According to Forbes Financial Expert, Jeff Rose, there's a simple formula to determine if a monthly car loan payment is too high. If the payment is higher than the amount you're able to save each month, you'll put yourself at risk of staying broke. You've likely heard the term "house broke" when someone takes on a mortgage payment that is too high. With car prices skyrocketing each year, going "car broke" could become an even bigger threat. 

Monthly Car Payment as a Percentage of Income

calculating car payment

There are many tips, tricks, and formulas to help car shoppers determine how much to spend on a vehicle. Calculating the car payment as a percentage of income can help some shoppers find the sweet spot for the vehicle they can afford. Nerdwallet suggests keeping your car payment under 10% of your monthly take-home pay so you can keep your total car costs below 15% to 20% of your income.

While this formula can seem too rigid, there is a more flexible approach called the '50-30-20' rule which splits up the take-home pay into three categories of expenses:

  • 50% for needs like housing, food, and transportation (your monthly car payment and related auto expenses)

  • 30% for wants like entertainment, travel, and other nonessential items.

  • 20% for savings, paying off credit cards, and long-term financial goals.

Although the monthly car payment is generally classified as a "need" if you want to buy a more expensive vehicle, you can consider part of the car's monthly payment as a "want" as long as you reduce the other expenses in that category to fit into the overall budget. 

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