How Does Your Car Loan Balance Compare to Your Fellow Americans?

Most people borrow to buy a car. Taking out an auto loan is often necessary because vehicles are just too expensive to pay cash for in most situations. But, you also don't want to borrow too much and adversely impact your financial situation.

If you're wondering where you stand with how much you owe on your car, it can be helpful to look at what your fellow Americans have borrowed for their own vehicles.

This is the average American's car loan balance

According to the Federal Reserve, the median balance on a vehicle loan was $15,000 in 2022, while the mean balance was $21,000.

These mean and median car loan balances include people who have been paying on their vehicles for a while and who have paid down a good chunk of what they owe. Unfortunately, loan balances are much higher for new borrowers. Edmunds reported that in the last quarter of 2022, the average amount borrowed for a new car was $40,833, while the average amount borrowed for a used car came in at $30,217.

The bad news is, many people buying cars now are borrowing a lot of money, but the good news is that people are paying down what they owe over time. So the average overall loan balance isn't nearly as high as the amount of debt new borrowers are taking on.

Are you borrowing too much for a vehicle?

The reality is, even owing $15,000 or $21,000 on a car can be a lot of money -- especially if you have been making payments on your loan for a while. The monthly payments on a $21,000 car loan at 6.5% (which was the average APR as of Q4 2022) would be $353.01 per month if you took out a six-year, or 72-month loan, and you'd end up paying a total of $4,416.61 in interest over that period.

Now, borrowing to buy a car often isn't optional, and it can be smart if you need a reliable vehicle to get to work since your car is an investment in the transportation you need to earn a living. But borrowing too much -- especially for a luxury car you can't afford -- could make it impossible to successfully manage your personal finances and meet money goals.

To make sure you keep your car loan payments to a reasonable amount, try to keep your payments to less than 10% of your monthly income. Be sure to make a solid down payment -- aim for around 10% at a minimum -- and try to take out as short a loan as possible so you don't get stuck paying for your car for many years to come.

Once your car is paid off, you should also try to avoid rushing to get another loan. Keep driving the car that you no longer have payments on for as long as possible, while putting the money you're saving on a car loan into your savings account. You can use that money to pay for repairs to keep the car on the road or to buy a new one in cash when the time comes. This way, you can have a car loan balance of $0 and won't have to worry about how your debt compares to that of your peers.