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It’s a lot of money, but some drivers pay that much for their car.
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Would you pay $1,000-plus each month if it meant you would eventually own your vehicle? Many drivers are making monthly car payments totaling $1,000 or more. That’s a lot of money to spend on a car. Some renters and homeowners pay that much on housing costs. A high car payment can significantly impact your finances, so you want to make sure you can afford to buy. Find out what you need to know before driving a new vehicle off the lot.
Monthly car payments have increased
It’s getting more expensive to finance new and used vehicles. Rising interest rates are one factor that has led to higher car payment costs. A recent report from Edmunds noted that 15.7% of consumers who financed a new vehicle in Q4 2022 committed to monthly car payments of $1,000 or more — which is a record high!
But not every driver is making a four-figure payment. In Q4 2022, the average monthly payment for a new car was $717, while the average monthly payment for a used car was $563. If you’ve been considering purchasing a new or used vehicle, you want to ensure you’re ready for the financial commitment.
Research the total cost of owning a car before you buy
Before taking on a car loan, make sure you research the total cost of buying a new or used vehicle. In addition to the price of the car itself, interest charges and car insurance expenses should be considered. It’s also not a bad idea to consider the cost of maintaining your car to keep it running well. Proper upkeep can help boost your car’s value.
If you need to replace your current car and are planning to finance a new or used vehicle, you may be able to save money by making a larger down payment when you buy. This strategy can be beneficial when interest rates are high. By making a larger down payment, you’ll need to finance less and can save a significant amount of money on interest charges.
If it’s not an emergency and you hold off on this purchase, now is an excellent time to start saving, so you have a sizable down payment by the time you’re ready to buy your car. Be sure to stash your extra cash in a high-yield savings account to earn interest as you save.
Keep your finances top of mind
Before making a big purchase, like a home or car, evaluate your personal finance situation. You should not only think about what you can afford right now but also consider whether you’d be able to continue to afford your purchase if a significant life change happened.
A solid emergency fund can help cover living costs if you lose your job, experience income changes, or experience another life change. If you don’t have an emergency fund, you may want to work on that financial goal before agreeing to a costly monthly car payment.
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