As money expert Clark Howard has been saying for a while now, car prices are finally starting to normalize — but they’re not exactly there yet. As you might imagine, auto financing and higher sticker prices over the past couple of years have had a balloon effect on car payments.
According to recent data from car valuation site Edmunds.com, car buyers continue to pay sky-high prices to drive off dealer lots with new and used cars.
What Is the Average Car Payment Right Now?
The average monthly payment for a new car is $733, according to Edmunds. That’s a $3 uptick from the first quarter and a $55 increase from the second quarter of the previous year.
The Edmunds data also indicates that more people are paying over $1,000 in monthly payments for their new and used vehicles.
Report: More People Paying $1,000+ for Monthly Car Payments
Here are some key findings from Edmunds’ latest report:
- A record 17.1% of consumers financed a vehicle with a monthly car note of $1,000 or more in the second quarter.
- The average annual percentage rate (APR) rose to 7.1%, which is the highest APR since 2007.
- For the fifth consecutive quarter, the average car loan was $40,000+ on average.
Before you finance a vehicle, you should know that Clark doesn’t want you to sign anything that locks you in for more than 3.5 years or 42 months.
“The longest auto loan you should ever take out is 42 months,” Clark says. “If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.”
The reasons you don’t want an auto loan longer than 42 months are:
- Longer terms may mean that you pay less every month, but you’ll pay more over the life of the loan.
- You’ll take on more debt, which could hurt your credit and severely limit your borrowing power.
- You run the risk of becoming “upside down” in the loan, which means you could potentially end up owing more than it’s worth.
Final Thoughts
As you can see, buying a car right now is still pretty expensive. Until car prices drop somewhere around what they cost before the COVID-19 pandemic, Clark says you should try to keep your current car on the road.
Don’t know where to start? Follow this simple maintenance guide to make your car last longer.
