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What Should Your Average Car Payment Be?

September 10, 2018 · 6 minute read

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What Should Your Average Car Payment Be?

In some ways, taking out a car loan can feel more stressful than doing your taxes and going to the dentist—combined. With so many options, how do you know if you’re choosing the right one? Auto loan FOMO is enough to keep you up at night.

Instead of thinking about all the opportunities for fun you missed out on, you’ll be asking yourself questions like-how much should you spend on a car? Am I paying too much on my current car loan? What is a good APR for a car? What does APR even mean?!

Obviously, you don’t want to pay more than you need to on your car loan. So, just how much is the typical American paying on their auto loans? According to Experian , the average amount that people borrow when buying a new car is a record $31,099 and the average amount borrowed for a used car is $19,589. In the same report the average monthly car payment was $515 for a new car or $371 for a used car.

Monthly payments might be at an all-time high, but so are term lengths with most Americans choosing term lengths of over 69 months to repay their loans on new vehicles on average and 64 months on average for used vehicles, according to Experian.

So, what should you do if you’re paying more or less than that and how much should you be paying in interest? Don’t worry–we’ve got answers for you.

What is a Good APR on a Car?

Wondering how much American borrowers are shelling out in interest? According to Value Penguin ,the average interest rate on auto loans over 60 months is 4.21% APR in 2018, but what you will actually pay will depend in part on your credit score.

They claim that on average you’ll pay 3.60% APR on a 60-month auto loan on a new car if your credit score is between 720-850, 4.95% APR if your score is between 690-719, 7.02% APR if your score is between 660 and 689, 9.72% APR if your score is between 620 and 659, 14.06% APR if your score is between 590 and 619, and 15.24% APR if your score is between 500 and 589.

TEXT , which more frequently tracks rates on auto loans, says that as of May 23, 2018 the average rate on a 60-month new car loan was 4.68% APR, the average rate on a 48-month new car loan was 4.62% APR, and the average rate on a 36-month used car loan was 5.21% APR.

What to Do If Your Car Payments are Too High?

No matter how much you love your car or anticipate loving your car, you don’t want to pay more than you have to for your auto loan. But many people do and don’t do anything about it. These are the same people who clip coupons to save $1 on mustard and sleep outside of big box stores to get $50 off on a TV on Black Friday.

Yet, when they have a chance to save hundreds or thousands of dollars on their car loan–they don’t realize that all they have to do is fill out an online application to see if they qualify to refinance their car loan at a lower rate.

If your car payment is higher than average, refinancing for a lower interest rate is a good way to lower your payments. Just how much can a lower interest rate save you over the course of a 60-month auto loan?

For example, if you bought a new car for the average price of $31,009 and paid a 10% down payment of $3,100 on it, you would pay $566 per month if you were charged 8% APR. In total, you would pay $6,044 in interest over the life of the loan. But if you managed to lower your interest rate by refinancing to just 6% APR, you would pay just $540 per month and just $4,464 in interest. That’s a savings of $26 per month and a savings of $1,580 over the life of your auto loan.

What if Your Car Payment is Lower Than Average?

If your car payment is lower than the average, then you don’t have to do anything, right? Wrong! Just because you’re paying less than your neighbor probably is doesn’t mean you can’t still save money by refinancing it!

After all, interest rates change over time and could have gone down since you’re initial loan. The same thing can be said if you improve your credit after you take out your car loan or if you didn’t shop around when you took out your loan. Since you can save even if you can only cut a percentage point or two off the cost of your loan, it makes sense to check refinancing rates every so often.

Refinancing an Auto Loan to Lower Your Monthly Payments

Most people assume that the only way to refinance an auto loan is with another auto loan. But that’s not the case! In fact, taking out a personal loan in order to pay off their auto loan can be a viable option.

There are a few reasons why refinancing an auto loan with a personal loan can be an attractive idea. The first is that you might be more likely qualify for a lower rate or a fixed rate loan if you choose a personal loan over an auto loan. In addition, you could be able to choose from more term length options.

That’s because personal loans tend to offer a wider range of term lengths allowing you to take out a loan for anywhere from 1 year to 10 years. This might be a good choice for you if you’re concerned about reducing your monthly payments since spacing out your repayment over a longer amount of time reduces your monthly car payment.

In contrast, auto loans typically restrict your term lengths to around 60-months or five years because they are using your car a collateral on the loan and it depreciates quickly. If they make the term length too long, your car is no longer worth enough to secure the balance of your loan.

One to consider is that if you have an older car and you’re wanting to refinance it over a longer term length, you might not be able to do so with an auto loan since many auto lenders have strict criteria around the makes, models, and age of the vehicles that they will refinance.

Collateral is another reason why you might want to take out a personal loan over an auto loan if you’re considering car refinancing. That’s because with an auto loan your car is used as security against the amount you owe. That means that if you get behind on your payments, the lenders can repossess your car. In contrast, personal loans are unsecured loans.

While secured loans often have lower interest rates than unsecured loans, auto loans can sometimes charge you higher rates than many online personal loans depending on your personal financial situation and credit.

Other downsides of taking out a secured loan is that you have to repay that loan when you sell your car. If, for some reason, you owe more on your loan than you get for your car – you will still need to repay that money immediately. If you buy another car, you will need to take out a new loan. With a personal loan, you can sell your car at any time without changing the terms of your loan.

If you’re looking to take out a new auto loan because you’re buying a new car, there are other benefits to getting a personal loan over an auto loan. Unlike most auto loans, you are not required to put a down payment on your car if you use a personal loan to buy it.

That means that you don’t have to wait to buy a car until you have saved enough for a down payment. This is particularly useful if you have to suddenly buy a new car because your old vehicle broke down and you don’t have enough in your emergency fund to cover that 10% to 20% down payment.

When to Refinance Auto Loans?

If you want to reduce your monthly auto loan and are trying to decide between getting a personal loan or an auto loan, it’s important to shop around to see what kind of rates you qualify for and to spend some time considering what kind of loan is best for you.

Some people find that they can save more with an auto loan, whereas others can save more with a personal loan. Sometimes people choose which loan is right for them based on which terms better suit their needs.

Wondering if you can get a lower rate on a personal loan than you’re currently paying on your auto loan? Just answer a few quick questions and we’ll let you know within minutes.


The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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