Why Are Car Payments So High?
If you're in the market for a new car, you might be surprised to learn that the average monthly payment for a new car is $716. For many people, that figure is astronomical, especially when only a decade ago the average payment was $400 or maybe $500. Before you head to the dealership in search of a car deal, you should understand why high car payments are the new normal. Here is an in-depth explanation of why car payments are currently on the brink of being unaffordable.
Many factors have negatively affected car affordability. First of all, inflation has a major effect on the rapid increase in car payments. In 2015, inflation was at a 0.7% annual increase; in 2021, inflation had surged to a whopping 7% annually. This huge increase in inflation led to an increase in everything, including car loan interest rates. Another reason car payments have become so exorbitant is the emergence of various high-tech safety features that cars now come with. So, obviously, because of the sheer cost of cars with these advanced features, overall costs rose.
Furthermore, car loan financing options aren't as plentiful for people with tarnished credit scores. Banks have raised minimum APRs on all loans, including car loans, and those with poor credit can expect higher rates. This drives up their car payment total even more.
Impact on Consumers
High car payments make it difficult for many people to save and meet their financial goals. Low-income individuals often have no choice but to take on unaffordable car payments due to limited options and the need for transportation. High new car costs leave low-income individuals to finance older cars or buy from buy here, pay here lots.
Tips for Managing High Car Payments
If your car payment becomes unmanageable, consider car loan refinancing. It extends the payment duration and reduces monthly payments for better affordability. A car payment calculator can help you determine how much of a monthly payment you can comfortably afford. Some other smart ways to manage a high car payment are:
Some other smart ways to manage a high car payment are:
- Replace the vehicle with something more affordable
- Contact your lender and request some relief, if available
- Sell the vehicle
High car payments have become commonplace, but with smart planning, a sufficient down payment, and good credit, you can find affordable deals on new cars.