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How to Know What Car Payment is Right for You

If you stop any random person and ask them what their most extraordinary fixed monthly expenses are, chances are that (besides their mortgage) they’ll all give one answer: car payments. It makes sense; America is a car culture, and cars are by no means cheap items for a household to afford. Most of us average Americans can’t afford to buy a car with cash, so we pay off our cars until it’s time to get a new one and restart the whole cycle.

Finding the right car payment amount that fits your budget can be a challenge. In our guide, we'll explore the topic of car financing and share how you can budget, learn about interest rates, and get an auto title loan to help if a financial emergency hits when you're searching for--or have just bought--a new car.

How To Find The Best Car Payment Option For You

Because they’re such a prevalent part of our everyday financial situation, today, we’re going to zero in and try to answer a straightforward question. What size car payment is correct for you?
It’s a more complicated question than you’d think, encompassing market realities, income, interest rates, and credit scores.

Car Payment Averages

Before we start figuring out what’s suitable for your situation, it’s a good idea to understand the broader context of car payments and loans in the country as a whole. According to Bankrate, the average American pays $2,014 in car payments each year, as the article goes into greater detail: 

"For many Americans, the cost to finance a vehicle can be one of the biggest hits to their wallets each month outside of housing costs. According to Experian’s third-quarter automotive finance report, drivers are spending over $700 and $500 each month for new and used vehicles, respectively."

 “In 2016, Americans applied for $564.6 billion in auto loans. By the end of 2017, that number had jumped to $568.6 billion. The auto loan industry has seen consistent gains with no signs of slowing over the past six years. Still, many of us are missing payments: 4.1% of active accounts were delinquent 90 days or more at the end of 2017.”

This quote helps set the stakes for car loans and why it’s essential to find one that fits you and your financial situation. Missing car payments is catastrophic for your credit score, and a ruined credit score can cascade into future economic problems.

How do you make sure that doesn’t happen to you?

man with money for his car payment

Figure Out What Your Budget Can Fit

The amount of money you make doesn’t suddenly change once you get a car. This is a fact, yet many people don’t seem to grasp it.
Your car payment needs to fit into your current budget, or you won’t be able to keep up with it. To know if a given payment can comfortably fit your budget, you first need to know your budget.

We’ve written about setting up an effective and accurate budget, but the quick version is that you need to track how much money is coming in and subtract it from how much, on average, is leaving each month. Whatever’s left over can go towards potential car payments.

Additionally, you can use the following budgeting apps to assist you in the process:

  • YNAB (You Need A Budget)
  • Mint
  • Goodbudget
  • PocketGuard
  • Honeydue (For Couples)

Length and Interest Rate

Besides the monthly payment amount, the next most significant consideration is the length and interest rate of the car loan. While it may not be evident on the surface why these two variables are grouped together, the reason is actually pretty simple: one directly affects the other.

While the length of your loan and the interest rate are generally negotiated separately, it’s essential to know that the total amount of interest you pay goes up the longer the loan is for. If, for example, your interest rate is at 4%, that’s 4% applied to the money you owe each month, not the total loan. The longer you take to pay off the loan, the more months that pass, and the more times 4% is charged.

The above is one reason that while it may be tempting to pay less each month, it sometimes makes sense to pay your loan off faster, as it means that you’ll pay less total over the loan's lifetime.


auto title loans TN


Know What Car You Need

The car itself is one of the most overlooked aspects of getting and paying off a car loan. Strangely, what car you pick is the single biggest determiner of how high your car payments will be, but too many people still treat the two concepts as distinct decisions. You choose the car and then try to figure out how to pay for it, or you decide what you want to pay and select the vehicle that fits the payment.

Both are flawed ways of buying a car, and you should instead consider them a single holistic decision. You’ll have to live with your vehicle and its payment daily, so make sure both suit your lifestyle.

For example, if you have four kids, you will need a van regardless of whether it has the ideal interest rate. On the other hand, the payment on a Lamborghini will quickly reduce you to a pauper unable to afford the gas to drive it. Think carefully about the interplay between car and payment before committing to either.

Other Car Payment Financing Options For Financial Emergencies

Along with a standard car loan, another short-term lending option is to take out an auto title loan on your existing car to pay for the new one. This loan should only be used for a financial emergency when you can't make your payments or need to fund an urgent car repair.

While this is often not viable for a single person, it can actually make sense for a household that needs a second or third car. Just be sure that the vehicle you’re taking the auto title loan out is already paid off in full, as that’s one of the criteria for being accepted for an auto title loan.

How Can You Get An Auto Title Loan In Tennessee?

Getting an auto title loan can help you if an emergency arises when you're facing a financial emergency. Here's how easy the process can be at Tennessee Title Loans, Inc.:

  1. Fill out the online inquiry form
  2. Please speak with our loan representative about the process and arrange a meeting location.
  3. Bring your required items for an auto title loan to the meeting.
  4. Our vehicle representative will quickly inspect and review your required documents. 
  5. If approved, you'll receive your emergency money that same day or the following business day.

Your Choice, Your Way: Get An Auto Title Loan In Tennessee Today!

Ultimately, no one knows your financial situation except you, but the above factors should give you a good idea of where you stand and what’s right for you. A car loan doesn’t have to be a headache; if you follow our advice, it won’t be.

If you're facing a financial emergency, consider getting an auto title loan with Tennessee Title Loans, Inc. You can begin the title loan process by filling out the online inquiry form. You can get up to $2,500 in emergency cash!


Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.

Daniel Dewitt

Daniel Dewitt is a lifetime blogger with a finely-honed ability to break down, analyze, and interpret economic trends for the layman. He's fiercely invested in spreading financial literacy and helping everyday people gain the tools they need for their own economic success.