If not you, perhaps someone you know has a monthly car payment over $1,000.
The number of new vehicle buyers with payments of $1,000 or more is on the rise, according to Edmunds.com, a car shopping site.
In its fourth-quarter report from last year, Edmunds reported that these consumers represented 18.9% — or nearly 1 in 5 of the total. This share has been steadily increasing.
The average monthly payment for a car was not far below that — a record $754 in the last three months of 2024, compared to $736 in the previous quarter and $739 in the fourth quarter of 2023.
The company noted that consumers are taking out larger loans than ever. The average amount borrowed in the fourth quarter was $42,113, compared to $40,713 in the previous quarter and $39,977 at the end of 2023.
Edmunds also found that zero-interest offers are harder to find, accounting for 2.4% of new vehicle purchases financed.
But there is an encouraging trend in the report: the average interest rate for new vehicle loans fell to 6.8%, compared to 7.1% in the previous period and 7.4% a year ago. For used vehicles, the average was 11% in the fourth quarter, compared to 11.6% in the previous period.
If you’re looking for a new or used car, here are some tips to avoid getting too deep in debt with a car loan.
1. Wait to buy until you reach a good credit score
If your credit score is low, hold off while you work to improve it. Interest rates for car loans are still relatively high, so don’t pay more than necessary.
2. Forget about fancy features
Do you really need a larger navigation and entertainment screen or a 360-degree camera system?
If you’re willing to forgo some features, you can find a good deal with a more manageable monthly payment. Plus, you may have a lower insurance premium and pay less in sales tax.
3. Buy used
Used car buyers, on average, financed $28,675 of their purchase. This came with an average monthly payment of $533, based on an average term of 69.5 months, an interest rate of 11%, and a down payment of $4,219.
Take a look at certified pre-owned vehicles. Additionally, nowadays there are better diagnostic tools that use codes to identify maintenance issues with the car.
4. Repair instead of replacing your vehicle
Is there a point where the math finally says it’s time to stop putting money into the old car?
There’s no consensus on the right time to trade in a car because the answer depends on many factors, such as: is the car so unreliable that you frequently find yourself stranded? Do you have money for a down payment? Will adding a loan affect your cash flow? How much will your auto insurance premium increase?
Source: The Washington Post