What Is Considered a High Car Payment?

Jan 30, 2023

Side of a blue car.

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Buying a car is a milestone in your life, whether buying your first vehicle or one for the family. You may dream of cruising in a new Corvette or want something made for the beaten paths. Either way, the price is one of the most important factors in this purchase. What is considered a high car payment with shortages and everything else going on? This guide will outline what you need to know about car financing. 

What Goes Into a Car Payment?

First, let’s dive into what goes into a car payment. Multiple factors will affect the monthly installments for your vehicle, including:

  • Car: Your monthly payment starts with what kind of car you’ve bought. Vehicles depreciate relatively quickly, so a used car will have a lower price than a new one. The value ambiguity may cause the lender to charge a higher interest rate.  
  • Loan amount: The next factor affecting your car payment is the loan amount. The lender will base the loan amount on the vehicle’s sale price. You can reduce the loan by making a down payment and trading in an old car, giving you the principal portion.
  • Loan length and interest: Another aspect affecting your car payment is the loan length or loan term. An extended loan term will lead to more interest that you’ll pay. Car loans are the most common, between three and five years, but longer terms have become more prevalent. The average loan term length for new cars in 2019 was 69 months. For used cars, it was 65 months.

How Has the Supply Chain Affected Car Prices?

Since 2020, the supply chain has been struggling, and the automotive industry has been no exception. At the pandemic’s beginning, automakers decreased their orders for microchips, which control several car systems. Demand for new vehicles dipped because people stayed at home. However, when states lifted restrictions and people returned to the office, car demand picked up, and manufacturers weren’t ready. 

The low supply and high demand have led to soaring car prices reaching record highs. In August 2022, the cost of a new car reached an average of $48,301, an increase of nearly $5,000 from the previous year. New vehicle prices seem to be decreasing slowly. But what is considered a high car payment today will be much different than three years ago and three years from now.  

What Is Considered a High Car Payment Today?

Car prices in the future will depend on auto manufacturers and their ability to get the chip shortage sorted out. But for now, the prices remain high. Auto loan rates are as high as they’ve been in 15 years, leading to $738 monthly payments for a new vehicle. More buyers financing vehicles have started to opt for installments surpassing the $1,000 mark every month.  

With these factors in mind, there are still ways to determine what is considered a high car payment for you. The first step is to tally your income to see your monthly budget. How much room do you have for a new car? A good rule of thumb is to spend at most 15% of your monthly income on your transportation, including your car payment, gas and maintenance. If you have an income of $4,000 a month, you should aim for $600 per month or less. 

If you can afford more than 15%, you have the option for a shorter loan term, saving you money on interest. However, you should be cautious. Spending over 30% of your monthly income leads to less money you can allocate for your other savings, like an emergency fund.  

What Is Considered a High Car Payment in 2023?

Buying a vehicle is an exciting time. You could be buying a new Mustang or a used pickup truck. Regardless, the car will be your new pride and joy. One obstacle many buyers face is the monthly payments. What is considered a high car payment nowadays? Car prices have soared, but you can still consider anything over 15% of your monthly income as an installment too high.

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Jack Shaw is a senior writer at Modded. Jack is an avid enthusiast for keeping up with personal health and enjoying nature. He has over five years of experience writing in the men's lifestyle niche, and has written extensively on topics of fitness, exploring the outdoors and men's interests. His writings have been featured in SportsEd TV, Love Inc., and Offroad Xtreme among many more publications.