Financing a new car is one thing, but being able to afford it throughout the entire length of the loan is another. What that means is that your monthly payment is important and what’s even more important is that you can comfortably afford it. According to new data from Experian, many Americans are currently paying higher monthly auto loan payments than ever before as car prices reach an all-time high.
Experian’s data shows record highs in new car loans and payments
Whether we like it or not, just about everything that we spend money on raises in price year after year, especially when it comes to cars. Credit Karma reported that in 2019, the average monthly payment for a new car was $550 and now the average new car monthly payment is $576. And while that doesn’t sound like that much of a difference, consider that the average loan amount for a new car is currently $35,228, which is an increase of $2,000 over the previous year, according to CNBC.
Experian’s data covers the fourth quarter of last year and what’s interesting about the rise in monthly payments and auto loans isn’t just the number amounts, but also the fact that auto sales are down year over year compared to 2019.
“We went up higher amounts year over year in 2020 than we ever really have before and hit record highs in loan amounts and record highs in payments,” said Melinda Zabritski, senior director for Experian’s automotive financial solutions team, told CNBC.
Used car monthly payment and loan amounts increased as well
The rise in new car prices and loan amounts isn’t the only news as Experian reported that the price for used cars and their relative loan amount increased in the past year as well. As of the fourth quarter reporting, consumers borrowed an average of $24,467, which is an increase of almost $1,700 year over year. As a result, the average monthly payment for a used car is currently $413, which is the first time it’s crossed the $400 mark.
“I can certainly remember when that ($400) was the average payment for a new car,” Zabritski said to CNBC. “Those days are gone. We’re certainly over $400 and don’t expect to see that come down.”
What does this all mean for you?
While we can clearly see that the cost for new and used cars is going up as the years go on — thanks to America’s love of trucks and SUVs – it doesn’t necessarily mean that you’re going to pay more the next time that you buy a car. The price of the car will vary on a case-by-case basis, as will the monthly payment, so you shouldn’t necessarily expect to be paying a $600 per month car payment unless you want to.
Nerd Wallet brought up the point that using the average car payment as a benchmark doesn’t tell you anything about how much you will actually pay for your next car. Especially considering the loan amount, interest rate, and loan term can vary greatly. If anything, it would be wise to use a loan calculator to figure out how much of a car that you can afford and then stick to a monthly payment that you will be comfortable paying over the next few years.