What to expect in 2023

For many Americans, the cost of financing a vehicle can be one of the biggest hits to their wallets each month outside of housing costs. On average, drivers spend more than $700 and $500 a month on new and used vehicles, respectively, according to Experian’s fourth-quarter automotive financing report. Insurance costs an average of $2,014 a year, according to data from Bankrate.

This hefty monthly charge is on top of inflation-based increases everywhere from the grocery store to the mall. So while the amount you pay to keep your car on the road depends on a number of factors ranging from your credit score, the vehicle you choose and the term of your loan; continued supply problems and high interest rates will increase the cost.

So whether you have bad credit or want to refinance your current loan, it’s important to understand the regular monthly payments and rates so you can be sure you’re getting the best deal.

Car payment statistics

• The average monthly payment for new cars is $716.

• The average monthly payment for used cars is $526.

• 39.5 percent of vehicles financed in the fourth quarter of 2022 were new vehicles.

• 60.5 percent of vehicles financed in the fourth quarter of 2022 were new vehicles.

• Of consumers who bought new vehicles in 2022, 80.9% chose to finance their vehicle, compared to 85.3% in 2021.

• Credit union financing accounted for nearly 30 percent of all auto loans during the same period.

• The average cost of car insurance is about $168 per month.

• New loans have increased by 4.04 percent in the fourth quarter of 2022.

• SUVs and wagons increased the financing share, reaching 60.7 percent in the fourth quarter of 2022.

The overall loan balance grew by 8.56 percent in the same period.

How much is a car down payment?

One way to curb higher-than-usual vehicle costs that result in expensive monthly payments is to pay a large down payment. A down payment is the cash you have available, any value that comes from trading in your vehicle or money from rebates. It will save you money before your financing starts and increase your reputation with lenders.

The story continues

A good down payment is at least 20 percent on a new vehicle, or 10 percent if you’re buying used. On average, in the fourth quarter of 2022, drivers paid $6,780 for new and $3,921 for used, according to Edmunds. Those who bought new vehicles paid 30 percent more than at the beginning of 2021.

How much will my car payment be?

Average monthly car payments are based on more than the cost of the vehicle. Your projected monthly cost is based on how much you’re borrowing to finance this vehicle to pay off the loan principal, along with your interest rate and loan term.

Average monthly car payments

Until the alternative data movement catches up, your credit score serves as your financial DNA and gives lenders an idea of ​​the risk you might be taking. If you have a solid credit history, you will likely be offered more competitive rates. And for most, better rates mean lower monthly payments.

Average car loan amount

Over the last year, vehicle prices have increased every month. In January 2023, used vehicles cost an average of $27,633 and new vehicles cost $49,388, up 5.9 percent from a year ago. Those higher price tags meant drivers were shelling out more money to finance their vehicles.

Average car loan rates

The key to finding the best rate available is to shop around with different lenders. Check out online lenders alongside more traditional banking options before signing off.

Average car loan terms

Most auto loans are available in 12-month increments. The most common terms are 24 to 60 months, but terms of 72 and 84 months are becoming more common. There is no perfect term, it is specific to your budget and needs. A longer term means lower monthly payments, but a higher cost overall.

How to calculate how much your car is worth

In addition to the monthly payment, there are additional costs. These include common expenses such as gas, insurance and maintenance. But you should also set aside money for unforeseen accidents, at least enough to cover your deductible.

To calculate this number before registering a new vehicle, you’ll need to do some guesswork.

1. Starting with vehicle maintenance, use the Edmunds car maintenance calculator to calculate the average cost based on your vehicle.

2. Then add that number to your expected insurance costs. While not all states require it, the average driver should be prepared to pay about $168 per month.

3. From there, add your estimated fuel costs. Use your car’s average miles per gallon and estimated monthly mileage along with average fuel costs in your area to come up with this figure.

4. Finally, consider the registration, fees and taxes you will have to pay, along with the depreciation of the vehicle.

The bottom line

While the rates available for vehicle financing are affected by many factors beyond your control, there are still choices you can make to put yourself in the driver’s seat when it comes to that big purchase.

Take the time to compare different rates and optimize your credit score to qualify for more competitive rates. This is especially important as consumers will face high costs in general next year. Current interest rates will make monthly payments more expensive, so be patient and consider how to save money in a high-cost environment.