- Rising car prices are leading to higher auto loan payments.
- Auto loans could get even more expensive now that interest rates are climbing.
You can slash your car payments by making a few smart choices.
Like with many other commodities, the cost of a new car has soared over the past year, largely due to a lack of supply. And that means drivers who need to finance a vehicle purchase are now spending more money on a monthly basis.
The average monthly payment for a new car just reached $656, according to May data from Edmunds.com. That includes a financing rate of 5.1% and a 70.5-month payoff period.
And that's not the worst news for drivers. Since the Federal Reserve is raising interest rates, auto loans are likely to get more expensive in the coming months.
If you expect to purchase a car in the near term, you could end up paying quite a lot of money. Here are some steps you can take to keep your costs down.
1. Get a used car instead of a new one
Cars tend to lose value once driven off the lot. And that's just one reason to opt for a used car instead of a new one. Edumunds.com reports that the average monthly payment for a used car is $546. Now that's not a small amount of money, but it is more than $100 less than the average monthly payment on a new car.
Now you may be worried that buying a used car will mean spending more on repairs, since it may not come with the same warranty as a brand-new vehicle. But if you buy a certified used vehicle, you can be more secure in the fact that the car you're buying is in decent shape.
2. Skip the extra features
New cars today tend to come loaded with features that salespeople will try to convince you are essential to the driving experience. But if you're able to be judicious about the features you pay up for, you can keep your automobile costs lower.
Also, the more features your car has, the more features you might have to pay to fix down the line. So that's another reason to skip the bells and whistles.
3. Make sure your credit score is in good shape
The higher the interest rate on your auto loan, the more money it will cost you. And if you have great credit, you might manage to snag a better rate than the average borrower.
Generally, a great credit score is one in the upper 700s or higher. If your score isn't there yet, you can boost it by paying all bills on time, knocking out a chunk of your credit card debt, and correcting errors on your credit report that could be working against you.
Don't overpay for a car
Owning a car is an expensive enough prospect between maintenance costs, auto insurance, and the ever-rising price of gas. And so it pays to do what you can to keep your car payments to a minimum.
There's a chance vehicle prices will remain high for the rest of the year as supply chains attempt to catch up to buyer demand. And so if you know you'll be needing a car, make the above moves to avoid busting your budget.
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