If you're looking for a few tips on managing a high car payment, you're not alone. The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high.
And that's before adding up the cost of maintenance, fuel, and auto insurance. When you add in inflation and the rising cost of auto insurance, there's no getting around the fact that owning a car is getting more expensive.
Keeping up with these expenses and a $500 automotive payment can be a lot to handle, so here are a few tips to help you manage your monthly payments.
1. Consider refinancing your auto loan
If you want to lower your monthly car payment, one good option is to refinance the loan. If your credit score is better than when you first applied for your auto loan, you may be able to get a better interest rate. Improving your interest rate could help reduce your monthly car payment.
Even if your credit score hasn't improved, you may still be able to refinance the loan at a better rate if you have equity in the vehicle. For example, let's say your original loan was for $40,000, and you have $20,000 left on the loan. If the bank values your vehicle at $30,000, you may have $10,000 in equity.
Having more equity in the vehicle may help you get a lower interest rate, but keep in mind that if you have too much equity, you may not be able to refinance the loan.
2. Map out a budget
Budgeting may be universally despised, but knowing where your money goes every month is the best way to find and cut unwanted expenses.
If you're having trouble making your monthly car payment, setting up a budget to track your expenses is a great first step toward managing your money. Luckily, it's easier than ever to track expenses using budgeting apps.
These apps can gather your credit card payments, bank statements, and other financial information to give you a complete picture of where your money is going. Once you know that, you can hone in on a few expenses to cut -- like unnecessary subscriptions or extra meals dining out -- to make it easier to cover your monthly car payment.
3. Consider consolidating your debt
If you already have the lowest automotive interest rate and have done everything you can with your monthly budget, another way to help with your car payment may be to consider consolidating your debt.
For example, if you have credit card debt in addition to your car payment, consolidating all of your loans with one personal loan could lower your monthly payments. It can also make managing your money easier by having one payment to make each month. It's important to shop around if you're considering this option to ensure you're getting a better interest rate on a personal loan than what you're currently paying.
Even if you don't end up going this route, looking at all of your current debts, their interest rates, and what options you may have to improve your monthly payment amounts can give you a better idea of how to manage your money.
Don't be discouraged
It's easy to think that you're the only one trying to figure out how to manage your money better. Believe me; we're all still learning. If you need some extra help, check out some financial literacy apps that can teach you about budgeting, investing, paying off debt, and much more.
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FAQs
As a general rule, it's recommended that your monthly car payment not exceed 20% of your take-home pay. So, if your monthly take-home pay is $3,000, your car payment should be no more than $600. Originally Answered: Is a $500 monthly car payment too much? Yes.
Is $500 a month a lot for a car payment? ›
As a general rule, it's recommended that your monthly car payment not exceed 20% of your take-home pay. So, if your monthly take-home pay is $3,000, your car payment should be no more than $600. Originally Answered: Is a $500 monthly car payment too much? Yes.
What 3 factors determine the monthly payment on an automobile loan? ›
Three major factors that determine your monthly car loan payment are your loan amount, the interest rate and the loan term.
What three 3 ways can one lower a monthly payment on a home car loan? ›
How to get a lower car payment: The 4 best strategies
- Renegotiate your loan terms.
- Refinance your car loan.
- Sell or trade in your car.
- Make extra payments when possible.
Balance Your Budget
50% for needs like housing, food, and transportation. In this case, the monthly car payment and other related auto expenses fit into this category. 30% for wants like entertainment, travel, and other nonessential items. 20% for savings, paying off credit cards, and meeting long-term financial goals.
What is the 20 3 8 rule? ›
The 20/3/8 car buying rule says you should put 20% down, pay off your car loan in three years (36 months), and spend no more than 8% of your pretax income on car payments. As we go into depth to determine how realistic this rule is, you may consider whether it can actually help you budget for your next car.
What is a realistic monthly car payment? ›
Use your annual income as a starting point to calculate how much car you can afford based on monthly payments. Financial experts recommend spending no more than about 10% to 15% of your monthly take-home pay on an auto loan payment.
Who has the lowest auto loan rates? ›
Compare Car Loan Rates
| Top Auto Loan Lender | Lowest APR | Term Length |
|---|
| PenFed Credit Union | 5.24% | 36 to 84 months |
| Auto Approve | 5.24%** | 12 to 84 months |
| Consumers Credit Union | 6.54% | Up to 84 months |
| Auto Credit Express | Varies | Varies |
2 more rowsIf you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
Why is monthly car payment so high? ›
Soaring interest rates have pushed monthly payments for financed new cars to an all-time high, according to Edmunds. The share of borrowers with payments over $1,000 jumped to 17.5%, the highest since at least 2019, and four times as many as before the pandemic.
Here are some tips to help keep your payments as low as possible.
- Compare multiple loan offers. ...
- Buy a lower-priced vehicle. ...
- Improve your credit. ...
- Make a larger down payment. ...
- Extend your loan term.
Estimates vary, but you can expect a voluntary repossession to lower your credit score by 50-150 points. How big of a drop you will see depends on factors such as your prior credit history and how many payments you made before the repossession.
Does refinancing a car hurt your credit? ›
Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.
How much should my car payment be if I make $60000 a year? ›
How much should I spend on a car if I make $60,000? If your gross salary is $60,000, your take-home monthly pay is probably around $3,750, assuming about 25% of your pay goes toward taxes and other expenses. Based on the 10-15% calculation, you should spend no more than $562.50 on a monthly car payment.
What is the money guys rule on cars? ›
The 20/3/8 rule stand for:
20% down. Finance no longer than 3 years. Total car payment is no more than 8% of gross income.
What is the 300% rule in auto finance? ›
“Present 100% of your products to 100% of your customers 100% of the time” is the credo F&I pros follow — at least for those living above $1,500 per copy. Also known as the 300% Rule, those who subscribe to it assume everyone's a buyer. It's a mindset we could all use on the service drive.
What is too high of a monthly car payment? ›
A high car payment is a subjective term and can vary depending on a person's individual financial situation and priorities. Generally, however, a car payment is considered high if it exceeds 10-15% of a person's gross monthly income.
What can a $500 car payment get you? ›
$500 Car Payment Calculator
| Finance Term | Monthly Payment | Car Price |
|---|
| 4 Years | $500 | $20711 |
| 5 Years | $500 | $25000 |
| 6 Years | $500 | $28983 |
| 7 Years | $500 | $32682 |
1 more rowYour monthly auto loan payments should not exceed 10 to 15 percent of your pre-tax take-home salary. Due to increased vehicle incentives, drivers may find relief when shopping for a vehicle this year. To secure the best deal, work to improve your credit score and consider making a sizeable down payment.
Can I afford a 500 dollar car payment? ›
It depends on how much income you have after your bills and expenses. But as a rule of thumb, your car payment should not exceed 15% of your post-tax monthly pay. For example, if after taxes, you make the U.S. median income of $37,773, you could shop for a car that costs up to $472 per month.
