As interest rates and car prices have gone up, so have car payments. The average monthly payment on a new car loan was $716 in the fourth quarter of 2022, according to Experian. Even on used car loans, the average monthly payment was $526. And those are just the averages. Some consumers with expensive cars pay more than $1,000 per month.
The good news is that many of the factors that determine your car payment are in your control. In fact, there's one move you can make that could help you save big, no matter what kind of car you buy and how much you borrow.
Your credit score plays a significant role in your car payment. Consumers in the super prime score range (781 to 850) pay an average of $683 per month for new car loans and $505 per month for used car loans. That's savings of $33 and $21 per month, respectively, compared to the overall averages.
Here's a full breakdown of car payments by credit score:
Credit score | Average new car payment (Q4, 2022) | Average used car payment (Q4, 2022) |
---|---|---|
Deep subprime (300-500) | $700 | $524 |
Subprime (501-600) | $746 | $542 |
Nonprime (601-660) | $753 | $541 |
Prime (661-780) | $723 | $519 |
Super prime (781-850) | $683 | $505 |
All | $716 | $526 |
Car buyers with the highest credit scores pay the least for both new and used cars. The difference in averages is as high as $70, between super prime and nonprime new car buyers.
One oddity you may have noticed is that consumers with the lowest credit scores don't have the highest average car payments. The most likely explanation is that those consumers buy cheaper cars and get smaller auto loans.
Regardless, auto loan rates depend largely on your credit score. All other things being equal, a better credit score will qualify you for a lower interest rate and a lower monthly payment.
A high credit score has lots of personal finance benefits, so it's always a good goal. If you want to raise your credit score before you buy a car, there are a couple of things to do.
The fastest way to boost your credit score is to lower your credit utilization ratio. Your credit utilization is your credit card balances divided by your credit limits. The lower this ratio is, the better. It's widely recommended to keep credit utilization under 30%, because any higher can hurt your credit.
The good news is that your credit utilization is updated monthly. If you go from, say, 80% utilization to 20%, that can drastically improve your credit within a month. Here are a few ways to lower credit utilization:
Also, make sure to pay your credit cards on time every month. Payment history is the largest factor in your credit score. Every on-time payment is good for your credit score, and late payments can have a huge negative impact.
An expensive car payment is something to avoid whenever possible. It takes up a large portion of your income, which impacts how much you can save and invest.
Fortunately, there are several ways to get a lower car payment. The price of the car you buy is what matters most, so don't stretch yourself too thin for a car you can't afford. A large down payment also helps, which is a good incentive to save as much as you can before you buy. And as the data shows, it helps to have a high credit score.
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We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Discover Financial Services is an advertising partner of The Ascent, a Motley Fool company. Lyle Daly has no position in any of the stocks mentioned. The Motley Fool recommends Discover Financial Services. The Motley Fool has a disclosure policy.
2023-06-05T17:07:43Z dg43tfdfdgfd