If you need an auto loan and have been asking yourself “what should I be paying each month on my car loan?” know that there’s no set answer to this. Many different factors affect your monthly payment amount, and it’s important to know what they are.

Three Factors that Determine Your Monthly Payment

According to Experian, the average car payment is increasing due to rising car prices and consumers preferring more expensive SUVs and trucks. In the fourth quarter of 2017, the average monthly payment for new cars was $515 and $371 for used cars.

What Should You be Paying Each Month on a Car Loan?Even though monthly payments are increasing, you can still put together a good budget. When determining what your monthly payment should be, be aware of these three factors that’ll affect it:

  1. Credit score – Your credit score affects how much you’ll be paying each month because it influences the interest rate you’re able to qualify for. For example, say you’re financing a used car for $15,000 with a 60-month loan term. If your interest rate is 14 percent, your monthly payment will be $349. If your interest rate is half that amount – seven percent – your monthly payment drops to $297.
  2. Down payment – The more you budget for a down payment, the less you’ll be paying monthly, because a down payment reduces the amount of the loan. When dealing with subprime auto loans, a down payment will almost always be required. The amount varies by lender, but they typically ask for a minimum of $1,000 or 10 percent of the vehicle’s selling price. If you’re able to put more money down, it’s highly recommended that you do. Not only will a higher down payment partially offset the effects of depreciation, it’ll also lower your monthly payment. For example, if you took out a $12,000 car loan with a 14 percent interest rate and a 60-month term and put $1,000 down, your monthly payment would be $256. If you add an additional $600 to the down payment, your monthly payment decreases to $242.
  3. Loan term – The length of your loan is also a deciding factor that determines your monthly payment. The longer your loan, the lower your monthly payment – but the trade off is that this increases the total cost due to increased interest charges. For example, if you took out a $12,000 car loan with a 14 percent interest rate for 48 months, you would be paying $327 a month and $15,740 total with interest factored in. If you were to increase the loan term to 72 months, your monthly payment drops to $247 but your total cost jumps to $17,803. It's recommended you keep your loan term as short as possible if you have bad credit and only qualify for a higher than average interest rate. If budgeting for a shorter term isn’t in the cards right now, you can take out a longer term loan and possibly refinance in the future for a better rate once your credit has improved. At the same time, if your finances improve, you can always pay a little extra every month to reduce your interest expenses.

The Bottom Line

Everyone’s monthly payment will differ based on many factors. Knowing what’ll impact your monthly payment will better prepare you for what you can expect to be paying. If you’re ready to take out a bad credit auto loan, but don’t know where to turn, Auto Credit Express has the resources available to help.

We work with a nationwide network of special finance dealers that have subprime lending specialists ready to help get you into your next vehicle. We want to guide you toward a local dealer that can work for you. Just fill out our online auto loan request form now to get started today.