While the exact figure varies from state to state, the average monthly car payment in the US currently stands at $554, according to recent data compiled by the credit reporting agency Experian. That’s a pretty sobering figure, particularly when you consider it’s the average. A lot of people are paying even more — and yes, people are paying less as well.
Still, it raises the question: How much new car will $550 a month get?
How Car Payments Are Calculated
A number of factors go into comprising a monthly car payment. Chief among them are the loan amount, your credit score and the length of the loan period.
Loan Amount: The higher the amount of the loan, the higher the car payment. And, while the overall price of the car also comes into play, it can be reduced with a large down payment. So ultimately, affordability is more about the loan amount than it is the price of the car.
Credit Score: Your credit history is considered an indicator of how likely you are to fulfill your end of the loan contract. A high credit score says you’re more likely to follow through. A low credit score says you might not. Lenders charge borrowers with lower credit scores higher interest rates to help mitigate the risk.
Loan Term: There was a time when the standard new car loan was 36 months. With the average new car transaction price currently standing at $34,000, loan terms have had to be extended to keep monthly payments in reach of most people. The typical new car loan runs 60 months these days, with terms of 72 and even 84 months offered by some lenders. However, the longer you make those payments, the more interest you’ll pay, so ultimately it will cost you a lot more to buy a car with an 84-month loan than a 60-month one.
So Really — It Depends
With so many variables in play, the best way to figure it how much your $550 will get out is to plug your exact scenario into a good auto loan calculator.
Let’s say your credit score is 750. This means you can qualify for an excellent interest rate — which is right around 4.93 percent these days. You also have a $10,000 down payment and you’re willing to extend your loan out to seven years (84 months).
With those parameters, you could afford to be financed up to $49,000, which means you could get a car priced at $59,000. (The loan amount would be $10,000 less than the purchase price because of your down payment.)
If you wanted to keep the loan term shorter, say 60 months, you could get a $49,000 car. If you wanted 36 months, you’d be in the neighborhood of $28,000.
A smaller down payment and a lower credit score changes things quite a bit. Let’s say you have a $5,000 down payment and a 699 credit score, which would get you financed at 11.3 percent. That $550 would get you a $42,000 car over 84 months. A 60-month loan would get you a $35,000 car and financing over 36 months would put you in a $26,000 car.
Ultimately, how much new car $550 a month will get is dependent upon your circumstances. This is why it’s important to run your numbers in a loan calculator before you shop. It’s easy to get more car than you can afford and still have the monthly payment you want. Simply put, if you have to finance a car more than 60 months to get a payment you can handle, that car is too expensive for you.