When we think about cars and what we want in a daily driver, many of us accept the fact that a car payment is a part of that package. For many Americans, a steady car payment is as much a constant payment as their mortgage or their utility payments. It’s just a part of life.
When we go over our financial status, we often fail to question our car payment or its need. According to Forbes, the average car payment is currently averaging $523 across the United States. This average means that many are paying even more than this much monthly for their car. It is time to address the concept of how monthly payments are figured and what to consider for future car shopping.
Car payment factors
When you sit down with a loan specialist either at the dealership or at your bank, you discuss several factors that are used to determine the car payment. First and foremost, your credit score provides a range of interest rates that the lender can offer. Depending on the lender, they will do a hard pull of your credit report from one of the three major reporting agencies.
After your credit report has been pulled, the down payment amount you put on the car will filter into the number of monthly payments and the term length. It is common for those financing a car payment to take longer terms such as 60 months or 72 months. Once these factors are presented to the lender, they will determine the fixed payment per month.
Why did we accept that car payment?
Accepting a car payment has been built into society over the last two decades. Because commutes are becoming longer and the use of cars is growing in our daily lives, cars have a tendency to need maintenance more often. For many Americans, maintaining their old car is not convenient and buying a new car is just more appealing.
Not only do new cars require less maintenance, but a newer model will also offer updated technology that people want. With this desire to maintain the convenience of minimal maintenance and state-of-the-art features, we have decided that an increased car payment is an essential monthly bill.
A new approach
Luckily, there is a way to reverse the thought process of needing a monthly payment on your car. Consider the difference you can make with an extra $523 a month, instead of that payment.
The additional services to maintain the upkeep of an older vehicle comes with time, but they are not monthly expenses. You could save that $523 a month and have it for when your older car needs repairs.
Save money and boost your wealth moving forward
Before you make that next purchase on a new car, consider that monthly payment and how it could affect you financially. If you are in a situation where you really need something new to drive, consider an older model that is less expensive but has been taken care of by a previous owner.
It is important to remember that a car payment is not an essential monthly bill like your utilities, but can be optional or decreased to be more affordable with a car that fits more into your budget.