Car Payment Guide: Calculating What You Can Afford

Quick Facts About Car Payments

• New cars average nearly $49,000 and used cars $25,500, with typical monthly payments of $745 and $525. 
• A monthly loan payment depends on loan terms, interest rate, purchase price, down payment, fees, and taxes.
• Lower payments result from choosing cheaper cars, bigger down payments, longer loans, and better credit, which leads to lower interest rates.

Buying a car is a significant event, with the average new car price close to $49,000. For most buyers, this high-ticket item requires financing with an auto loan. The average monthly payment for a new car loan is more than $745. Used car buyers in today’s market must also devote a hefty chunk of their budget to paying for auto loans. The average listing price for used cars is close to $25,500, and loan payments for previously owned models are close to $525.

Often, the first step for potential buyers is figuring out the monthly payment they can afford. Use our guide to learn about car payments to help estimate how much you can spend each month for your new ride. We’ll help you understand loan payments, interest rates, credit scores, and other considerations with financing a car purchase. This information can help you focus on a price range while car shopping.

• How to Budget for Your New or Used Car
• What Does a Car Payment Include?
• How to Calculate a Car Payment
• How to Find Out Your Credit Score
• Determining Car Taxes and Fees
• How to Get a Low Car Payment
• Tips for Buying a Car

How to Budget for Your New or Used Car

Before kicking tires at the dealership, use our car budgeting and affordability calculator. The easy-to-use tool can help you determine the maximum price for an automobile you can afford based on your preferred monthly car payment.

The tool will ask you for factors, including:

• Monthly car payment target
• Information on cash down payment
• Details about car trade-in value
• Preferred loan terms
• Sales tax rate

When you plug in the details that affect your monthly payment, the tool estimates a car price to give you a target range to aim for when shopping.

These days, new vehicles are selling close to the manufacturer’s suggested retail price (MSRP), but automaker incentives are often available. Figures from Cox Automotive show incentives averaged 6.8% of transaction prices in May 2025, or nearly $3,300. That’s about the same as last year, but earlier this year, they were about 8% of the average transaction price.

What Does a Car Payment Include?

The monthly payment for your financed new or used car can cover more than the price of the vehicle. The loan — and your car payment — may include other fees associated with buying a car:

• Taxes
• “Doc” fees or additional dealer fees
• Destination charge
• Vehicle service or maintenance contract
• Extended warranty
• Other add-ons purchased at the time of delivery, like a roof rack or towing package

Lenders and dealers determine the car payment based on many considerations. The most obvious factor for the loan amount is the price of the car minus the cash down payment and trade-in allowance. Interest rates for new vehicles are typically lower than used car rates.

Length of Loan

Your next consideration will be the length of the loan or the number of months you will have to repay the money. A typical lender offers car loans with terms of 36, 48, 60, or 72 months, with some extending to seven years, or 84 months. Five-year terms used to be commonplace for car loans. The credit experts at Experian report that in the first quarter of 2025, the average loan length for new cars was 68.6 months and 67.2 months for used models.

• Shorter loan terms create a higher monthly payment and build equity faster.
• Longer loan lengths bring lower monthly car payments, but you’ll pay more in interest over time and owe more than the car is worth for longer.

Interest Rates

Loan interest rates change the amount of your car payment. In the first quarter of 2025, the average interest rate was 6.7% for new car loans and 11.9% for used car loans. Borrowers with higher credit scores generally qualify for lower interest rates and sometimes zero-interest loans because lenders see those customers as less of a risk.

If you have a lower credit score, you might obtain a better interest rate by making a larger down payment. More money down reduces the loan amount and, in turn, your monthly interest charges.

Lenders also consider your total income when deciding the interest rate for your loan. The percentage of your income used for debt payment, or debt-to-income (DTI) ratio, indicates your ability to repay the loan. Having a lower DTI increases your chances of obtaining a lower interest rate.

How to Calculate a Car Payment

Our car loan payment calculator can help you estimate how much the monthly car payment will be for your next vehicle. When you’re shopping to get behind the wheel of your next vehicle, enter basic information into the tool to see how different factors affect a car payment.

You’ll enter information including:

• Car cost
• Loan length
• Interest rate
• Down payment
• Trade-in car value (if applicable)

This information and other criteria will help you instantly calculate an estimated monthly cost of financing for your car payment. Use this simple calculator alongside our affordability tool to find the price point that fits your budget.

The calculators ask for information about the value of the vehicle you’re trading in. Kelley Blue Book’s car valuation tool on our sister site, KBB.com, can help you determine that figure using basic info about your current automobile.

TIP: Used car inventory is tight. When demand is up and supply is down, there’s less wiggle room for negotiation. So, before you negotiate your trade-in, first get the best price on the vehicle you’re buying. Once you and the dealer agree to the final sale price, negotiate the trade as part of the deal.

How to Find Out Your Credit Score

Knowing where your credit stands before applying for a loan could save you a lot of money.

The major credit bureaus — Experian, Equifax, and TransUnion — gather account information from your creditors to assemble your credit history. A credit report may include a summary of information, including credit limits, high balances, current balances, payment histories, etc. It tells a potential lender how much indebtedness you currently have and how reliably you have paid your bills in the past.

A vital component of a credit report is your credit score. This number is assigned using complex calculations to indicate if someone is more likely or less likely to miss a payment. The farther away you get from past credit problems, the more your score increases. Borrowers with higher credit scores qualify for better loan rates.

Many credit card companies, banks, loan companies, and credit bureaus provide credit scores at no charge. Credit score ranges for Equifax are:

• 280-559: Poor
• 560-659: Fair
• 660-724: Good
• 725-759: Very Good
• 760-850: Excellent

Experian has different score ranges and category names:

• 300-500: Deep Subprime
• 501-600: Subprime
• 601-660: Nonprime
• 661-780: Prime
• 781-850: Super Prime

Free weekly credit reports from the credit bureaus are available to check your credit history regularly. Request reports through AnnualCreditReport.com.

My Wallet

Autotrader offers another tool called My Wallet, which puts everything together for you.

My Wallet lets you search car inventory using your specific budget and factors, including your car trade-in value and credit score. You can even search by a particular payment based on actual interest rates. It puts the car buyer in control before stepping foot in a dealership.

To access the My Wallet dashboard and use its helpful tools, click on the wallet icon with the dollar sign in the upper right corner next to the login link on Autotrader pages.

Determining Car Taxes and Fees

The sale price of a new car isn’t final until the invoice includes destination charges, dealer fees, and taxes. The car window sticker lists some fees, while others aren’t mentioned until you’re ready to sign the paperwork.

A destination charge, sometimes called a freight fee or freight delivery charge, ensures new car buyers pay equally to cover the cost of delivering a vehicle to a dealership. According to United States law, car delivery is always listed as a separate line item on a new car window sticker. Destination fees are not negotiable and range from about $850 to $2,000, or more for some full-size pickups and EVs. A used car will not have a destination fee or desination charge.

Other common dealer fees aren’t obvious because they don’t appear on the car window sticker:

• Sales tax: Make sure to research your state’s regulations on tax rates before buying a car and understand how the collection affects your final sales price.
• Title and registration: Dealers pay these fees to process the title and registration of the car. It’s a standard fee and saves car owners a trip to the state motor vehicles department. Know your state’s fees ahead of time, and make sure the invoice charges are reasonable for the dealer to handle this paperwork.
• Delivery: If you see a delivery fee in the final charges for the car, ask the dealer about it because it may be negotiable.
• Documentation: Sometimes known as a “doc” fee, these fees cover the sales documentation preparation costs. Some states regulate these fees.
• Other: Check this category carefully on your sales invoice. Other fees, such as those for reconditioning, vehicle prep, additional dealer markup or profit, and factory holdback, are a few charges that might show on your invoice. It can’t hurt to ask to remove these fees.

How to Get a Low Car Payment

Try these strategies and tips to get lower car payments. Some will take time to implement, while you can use the other advice immediately.

• Select a less expensive used car. You might save hundreds of dollars each month by choosing a used model over a new vehicle.
• Make a larger down payment. While you shouldn’t wipe out your entire savings, make a down payment that fits your budget because the larger it is, the smaller your monthly car payment.
• Extend the length of the loan. Longer repayment terms create smaller monthly payments. Just know that these can cost more in the long run, and you risk being “underwater” on the loan, meaning you owe more than the car is worth.
• Avoid unnecessary fees. Pay attention to what you’re signing and question everything you see on the invoice. Every dollar contributes to your monthly payment.
• Boost your credit score. Improving your credit takes time, but a good credit score will help you qualify for better interest rates.
• Reduce debt. A lower debt-to-income ratio shows lenders that you can pay off the loan, increasing your chances of getting a good interest rate.

Be sure to shop around and do your homework for the best deals and loans on a vehicle. You aren’t required to finance your car through the dealer’s preferred lender.

However, automakers’ lenders sometimes offer new auto loans with 0% or low-interest rates for well-qualified buyers.

Tips for Buying a Car

Learning to buy a used car or a brand-new vehicle is the initial step toward car ownership. Because most people don’t buy cars as often as they purchase shoes, it can be intimidating and stressful.

The primary cause of stress stems from the finances involved in buying a car. To ease the anxiety and make the process smoother, determine your budget before you begin shopping or studying negotiating tips.

Factor in all expenses related to ownership when planning how much you can afford for a vehicle. In addition to the monthly car loan payment, you’ll have gas, repairs, and maintenance costs.

Car insurance is a required critical cost of ownership. Insurance coverage for specific makes and models might put them out of your reach. You can save time and avoid potential frustration or disappointment by writing down the vehicle identification number (VIN) of any car online that interests you early in the process. Then, get a few sample insurance premium quotes before continuing to shop for your new wheels.

Editor’s Note: This article has been updated for accuracy since it was initially published.