What Should My Monthly Payment Be for a Car Loan?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - July 12, 2018

There are several factors that go into determining just what the monthly payment on your car loan is going to be. Only the lender can tell you for sure what your payment amount will be, because every auto loan is as individual as its borrower.

Setting Your Monthly Payment Budget

There’s no set amount that’s universally labeled as “the right amount” when it comes to car loan payments. What’s more realistic is finding the right payment for you. The simplest way is to set a good budget, and know the payment range that fits into that budget.

Generally, lenders don’t want to see your combined car loan and insurance payment take up more than 15 to 20 percent of your gross monthly income. This is called a payment to income ratio.

To find out what your budget can handle, simply multiply your pre-tax monthly income by 0.15 to get the low end, and 0.20 to get the high end. For example: $2,456 x 0.15 = $368.40 and $2,456 x 0.20 = $491.20. That means that you can ideally afford a combined loan and insurance payment of between $368 and $491 a month.

It’s About More than the Monthly Payment

Now that you know what your monthly budget can handle for a car payment, stop thinking about it and put that number aside. It’s a good guideline to keep in mind, but it’s not a good way to approach a car loan.

Everyone hopes for the lowest possible payment when they finance a vehicle. But focusing solely on the monthly payment can mean losing sight of the big picture. In fact, you could end up paying thousands more than necessary for your car. This is because in order to keep you payments reasonable, lenders often offer extended loan terms, stretching to 72, 76, and even 84 months.

Instead of focusing on the lowest monthly payment, look at the most you can comfortably afford for the shortest loan term possible. This way, you’ll lessen time your car will have negative equity, as well as lower the overall amount of interest charges you pay over the loan term.

Other Factors for Determining the Monthly Payment

Keep in mind that your monthly car loan payments are going to be based on a few main factors. They are:

  • Your interest rate – Your interest rate is mainly based on your credit score. Generally speaking, the lower your credit score, the higher your interest rate.
  • Your down payment – A down payment is one of the best ways you can help yourself save money over the course of your auto loan. A significant down payment – one equal to 20 percent of the vehicle’s selling price – reduces your overall cost, can shorten your loan term, and pulls your vehicle out of negative equity sooner.
  • Your loan term – The shorter the loan term, the less money you’ll pay in interest charges over the life of your loan.
  • Overall sales price of the vehicle – Don’t forget that total selling price includes more than just the negotiated vehicle price. Tax, title, license, and dealer fees will all factor into the total sale price.

The Bottom Line

Now that you know there’s no set payment that’s right for everyone, you can start finding the right monthly amount for you. If you need help, or want to see what you might qualify for overall, make sure to check out our car loan calculator.

If you’ve got a budget in mind, but don’t know where to turn for the right dealer, let CarsDirect help. We work with an extensive network of car dealers all across the country, and they have lenders that can help people in all kinds of credit situations. Don’t hesitate another day. Fill out our easy car loan request form and start the process of finding your next car loan today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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