A "decent" monthly car payment is highly subjective, as it depends significantly on an individual's financial situation, budget, and priorities. However, looking at average payments can provide a benchmark. For many, a "decent" payment is one that fits comfortably within their budget without sacrificing other financial goals or necessities.
Average Monthly Car Payments
According to data from Experian Information Solutions (3rd quarter 2024), average monthly car payments vary significantly based on credit score and whether the vehicle is new or used. This data primarily reflects payments for consumers with nonprime to deep subprime credit scores, who typically face higher interest rates and, consequently, higher payments.
| Credit Score | Average Monthly Payment (New Car) | Average Monthly Payment (Used Car) |
|---|---|---|
| Nonprime: 601-660 | $767 | $529 |
| Subprime: 501-600 | $750 | $535 |
| Deep Subprime: 300-500 | $724 | $535 |
Source: NerdWallet
It's important to note that these figures represent averages for specific credit score tiers and may not reflect payments for individuals with excellent or prime credit, which are often lower.
Factors Influencing a "Decent" Payment for You
While average figures offer a general idea, determining what's truly "decent" for your budget involves considering several personal financial factors:
- Your Income and Budget: Financial experts often recommend that your total car expenses (including payment, insurance, fuel, and maintenance) should not exceed 10-15% of your net monthly income. A common guideline for just the car payment is to keep it under 10% of your take-home pay.
- Credit Score: A higher credit score generally qualifies you for lower interest rates, significantly reducing your monthly payment over the life of the loan. The averages above illustrate how lower credit scores are associated with higher payments.
- New vs. Used Vehicle: As seen in the table, used cars typically have lower average monthly payments than new cars due to lower purchase prices.
- Loan Term (Duration): Extending the loan term (e.g., to 72 or 84 months) can lower your monthly payment, but you'll pay more in total interest over the life of the loan. A shorter term means higher monthly payments but less interest overall.
- Interest Rate (APR): This is a key driver of your payment. Even a percentage point difference can lead to substantial savings or additional costs over the loan term.
- Down Payment: A larger down payment reduces the amount you need to finance, leading to a smaller loan and a lower monthly payment.
- Other Car-Related Costs: Beyond the loan payment, factor in auto insurance, fuel, maintenance, and potential repair costs. A "decent" payment leaves room for these other essential expenses.
How to Determine Your "Decent" Car Payment
To find a car payment that truly fits your financial situation, consider these steps:
- Assess Your Budget:
- Calculate your total monthly income after taxes.
- List all your fixed monthly expenses (rent/mortgage, utilities, existing debts).
- Determine how much discretionary income you have available for a car payment and related expenses.
- Get Pre-Approved: Before visiting dealerships, get pre-approved for an auto loan from a bank or credit union. This helps you understand the interest rates you qualify for and sets a clear budget.
- Use Online Calculators: Utilize online auto loan calculators to see how different loan amounts, interest rates, and terms impact your monthly payment.
- Consider the Total Cost of Ownership: Don't just focus on the monthly payment. Look at the car's overall price, expected depreciation, insurance costs, and estimated maintenance to ensure it's a wise financial decision long-term.
- Aim for the 20/4/10 Rule (Guideline): While not universally applicable, a common guideline suggests:
- 20% down payment.
- A loan term no longer than 4 years (48 months).
- Total car expenses (payment, insurance, fuel) should not exceed 10% of your gross monthly income. Adjust this based on your personal financial comfort.
Ultimately, a "decent" car payment is one that you can comfortably afford each month without straining your finances, allowing you to meet other financial obligations and save for your future.
