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5 Tips to Lower Your Car Payment as Average Costs Reach a Record High
By Pete Grieve MONEY RESEARCH COLLECTIVE
The average monthly payment for a new car recently reached an all-time high of $740.
New car buyers’ budgets are being pushed to the limit by rising auto loan rates and high vehicle prices.
The average monthly payment for a new car reached a record high in the second quarter (April to June), according to a new report from Edmunds.
Even though car prices have declined in the past year, the average monthly car payment increased to $740, up from $733 in the second quarter of 2023.
Part of the increase is attributable to auto loan rates, which jumped to an average of 7.3%. The average was 7.1% a year ago, and it’s been been above 7% for six quarters in a row now.
In this tough market, buyers are making smaller down payments, which also means higher monthly payments. The average amount buyers put down decreased to $6,579 in the second quarter. That was the lowest level since 2022 and a drop from $6,823 a year ago.
There is some good news for shoppers as the supply of new cars has gotten much better in the past year, leading to more discounts. But vehicle affordability remains a challenge for just about anyone financing their purchase.
“In theory, improved inventory and growing incentives should paint a more consumer-friendly picture of the market, but the reality is most Americans can’t buy their cars with cash, and increased borrowing costs continue to be a major roadblock when buying a new vehicle,” Jessica Caldwell, head of insights at Edmunds, said in the report.
Strategies to lower your car payments
Car shoppers financing a new car should thoroughly research their options and remember to stick to a budget that they can afford. Here are some strategies to get a lower monthly payment for your next new car:
- Make a bigger down payment: Car buyers are committing to higher monthly payments as the average down payment has decreased. But putting too little down can be a mistake: By saving more money for a bigger down payment, your monthly responsibility will be more manageable.
- Find the best financing option and incentives: New car buyers can compare financing options from different lenders like banks and credit unions, and cross those with the options that dealerships offer. In some cases, car buyers with good credit can find 0% or sub-2% loan rates through subsidized dealership financing promotions. According to RealCarTips.com, financing offers are gradually improving and there are more than two dozen 0% APR promotions running in July. (Some of these deals are only available for shorter loans, which means the monthly payments may not be particularly affordable.)
- Negotiate: As the inventory of new cars improves, shoppers have more leverage to negotiate at the dealership. The extra time it takes to haggle with several different dealers could save you hundreds or even thousands of dollars over the life of a multi-year loan. You can also explore special discounts and cash back offers that may be available in your area.
- Choose the right car: Despite high average car prices, there are still plenty of options under $30,000, several of which made Money’s Best Cars of 2024 list. Shopping for a more basic or less popular vehicle could be the right move for your wallet.
- Consider your loan term: Edmunds reports that buyers are opting for longer loan terms to reduce their monthly payments. About 70% of loans in the second quarter had terms over 60 months. Keep in mind, however, that you’ll pay more in interest over the course of the loan with a longer term.
More from Money:
The Overall Best Car for the Money in 2024
Summer Car-Buying Guide: 3 Tips to Get the Vehicle You Want at the Best Price
Pete Grieve is a New York-based reporter who covers personal finance news. At Money, Pete covers trending stories that affect Americans’ wallets on topics including car buying, insurance, housing, credit cards, retirement and taxes. He studied political science and photography at the University of Chicago, where he was editor-in-chief of The Chicago Maroon. Pete began his career as a professional journalist in 2019. Prior to joining Money, he was a health reporter for Spectrum News in Ohio, where he wrote digital stories and appeared on TV to provide coverage to a statewide audience. He has also written for the San Francisco Chronicle, the Chicago Sun-Times and CNN Politics. Pete received extensive journalism training through Report for America, a nonprofit organization that places reporters in newsrooms to cover underreported issues and communities, and he attended the annual Investigative Reporters and Editors conference in 2021. Pete has discussed his reporting in interviews with outlets including the Columbia Journalism Review and WBEZ (Chicago's NPR station). He’s been a panelist at the Chicago Headline Club’s FOIA Fest and he received the Institute on Political Journalism’s $2,500 Award for Excellence in Collegiate Reporting in 2017. An essay he wrote for Grey City magazine was published in a 2020 book, Remembering J. Z. Smith: A Career and its Consequence.