Monthly Car Payment: What It Is and How to Calculate

When you finance a vehicle, you will be making monthly loan payments over several years. This outlay includes the principal (the original loan), interest (the fee charged by the financial organization for borrowing the money), and any optional add-ons you may have chosen.

Generally, higher interest rates lead to higher monthly car payments. The lender can also add any applicable fees to your total if you have made a late payment, provided this is permitted by your contract. 

How much should my monthly car payment be?

Strive to allocate no more than 10% of your monthly wages after taxes towards your car payment. Additionally, it is recommended that your total car-related expenses—including gas, insurance, maintenance, and the payment itself—should not exceed 15 - 20% of your overall monthly income.

How monthly car payments are calculated

Monthly car payments are usually determined by the total amount financed, the interest rate, and the loan term.

• Loan amount: The total amount you are borrowing.
• Loan term: The period over which you should repay the loan.
• Annual percentage rate (APR): This encompasses the interest rate as well as any fees charged by the lender.

Using these factors, lenders calculate your monthly payment, which includes both interest and fees. Understanding these calculations can help you manage your finances more effectively and avoid unexpected costs. Most buyers try to keep loan terms to a maximum of 36 months for used cars.

What is the average monthly payment for a car in 2025?

According to Experian data from Q4 2024, the average monthly payments for new models decreased by 0.1%. During the same period, average payments for used and leased vehicles dropped by 1.9% and 1.6%, respectively. This results in average monthly payments of:

• $742 for new cars, 
• $525 for used models, 
• $600 for leased vehicles. 

Additionally, the February 2025 U.S. Bureau of Labor Statistics (BLS) consumer price index shows an increase in prices by 0.8% for used cars and trucks, while new vehicle prices have fallen by 0.3%. On average, Americans are borrowing $41,572 for new vehicles and $26,468 for used ones, as reported by Experian.

Typically, purchasing a brand-new car tends to be the most costly option, especially if you are unable to make a substantial down payment. If you have adjusted your budget and explored various loans but still can’t find an affordable car payment, consider opting for a used vehicle. Buying a pre-owned, or certified pre-owned car can be an excellent way to achieve a lower monthly payment. Since used cars generally have a lower price point, the loan payments are typically more affordable.

What does the interest rate on a car loan mean?

The interest rate in a car loan represents the extra percentage added to the financed amount that the financing organization charges for borrowing the funds. The interest rate is influenced by factors such as your credit score, the duration of the loan, and the lender you choose. Comparing rates from several lenders is a wise step in securing more favorable car loan terms.

Is it better to buy a car or pay monthly credit interest?

If you can afford to pay for a car in full, doing so might save you from paying interest. However, if you don't have the cash available, financing the car with monthly payments may be a more feasible option. Additionally, making timely payments can help you build your credit. Evaluating the advantages and disadvantages of both choices can assist you in making a well-informed decision.

If your terms involve an advanced payment, you can save on the percentage overpaid by sending extra money each time you have free funds on hand. You just need to act according to the procedures recommended by the lender to get these amounts accepted as credit body coverage and as a confirmation to receive a new calculation of your credit amount. 

While many factors beyond your control influence auto loan rates, making informed decisions can empower you to take charge of vehicle purchase. Contact the Indy Auto Man finance department in Indianapolis and our experts will help you calculate the optimal loan terms and your monthly payment so that it doesn't ruin your budget.