The new reality: A $700 monthly car payment
(
Six months later, normal looks further away than ever. The
According to data company
Automotive research firm Edmunds lists October's average car loan APR as 6.3% for new and 9.6% for used.
"Even if you save
To illustrate Drury's point, financing a
High car payments are affecting all car-buying segments
During
On the same call, chief economist
On the other end of the spectrum, Edmunds recently reported 14.3% of consumers are committing to monthly car payments of
Says Drury, "I tell people if a
When waiting to buy a car isn't an option
Twenty-six-year-old
Roeder and his wife discussed budget, used an auto loan calculator to set a maximum payment amount and researched trade-in values. Roeder took a day off from work and went to the dealership with hard numbers in mind but ready to walk away. He says, "It helped me feel comfortable with the decision and pulling the trigger, because I already knew beforehand what numbers I was OK with."
As Roeder found, running the numbers ahead of time puts guardrails around the purchase, giving buyers the power to say yes or no.
Even as interest rates and car payments rise, conventional car-buying advice can still be helpful for those who can't put off buying a car.
In a typical car market, the rule of thumb is to spend less than 10% of your take-home pay on a car payment. If that's a stretch, try reallocating other spending. Avoid going with a long-term loan to reduce the payment, as you could become upside-down, owing more than the car is worth.
Compare interest rates from different lenders. Many lenders offer pre-qualification, which gives you rate estimates without affecting your credit score. Then, apply for a preapproved loan and bring it to the dealership, giving them a rate to beat. If you don't do your homework and end up with a dealer's double-digit interest rate, you might still be able to refinance to a lower rate and payment with a different lender.
Other long-standing advice is to make a down payment of at least 20% on a new car and 10% for used cars. If this isn't attainable, any amount down can help reduce your payment.
If you can't find a car with a payment that fits your budget, an option may be purchasing a cheaper, higher-mileage used car that's been well-maintained.
Says Drury, "You can get an older vehicle, and thankfully some are good for easily 100,000 miles. I tell people you can buy older and deeper into the used market if you're trying to save some money or just get a vehicle to hold you over for another year or two."
If buying an older vehicle, research models known for longevity, check maintenance records, invest in a prepurchase inspection, and avoid a long-term loan that could leave you upside-down as the car loses value.
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