Key takeaways
- Your monthly auto loan payments should not exceed 10 to 15 percent of your take-home salary.
- New and used vehicle prices have remained high over the last few years, and experts predict that they are unlikely to decrease significantly in the near future.
- To secure the best deal, work to improve your credit score and consider making a sizable down payment.
The new year is a good time to review your budget and make sure your income and debts, including your car payment, align with your financial goals. If you’re shopping for a new — or new-to-you — car, keep an eye on both the price of the vehicle and current interest rates. And if you already have a car but are thinking of refinancing, pay attention to rate trends so you can switch lenders at a time that benefits your budget.
In 2024, the Federal Reserve made three rate cuts to the benchmark rate that auto lenders use, in combination with other factors, to determine the rates they offer. The last cut, in December 2024, brought the new target rate to 4.25-4.5 percent.
Your credit score, payment history and financial situation also weigh heavily on the interest rate you pay and the size of your car payment. Over 18 percent of new-vehicle borrowers had monthly payments of over $1,000 in the fourth quarter of 2024, according to Edmunds. If you are trying to avoid auto loan rates that don’t match your financial goals, start by reassessing your budget and finding a lender that fits your needs.
Will car payments be higher in 2025?
If you’re considering purchasing a vehicle in 2025, there are some factors to consider. According to Ivan Drury, director of insights at Edmunds, there has been improvement in product availability in 2025, and MSRP discounts continue to increase. Even still, the actual selling price of vehicles has increased.
“This is due to … consumer preferences for SUVs and trucks … along with more vehicles driven by electrified powertrains,” Drury explains. “Additionally, the Fed has signaled that interest rates are not guaranteed to fall throughout the year, and the continued threat of tariffs … could result in notable price increases.”
With increased sale prices and no guarantee of better rates, buyers will need to be strategic in their shopping to avoid car payments that are too expensive for their budget.
Drury shared his top tips for vehicle buyers in 2025:
- Buy sooner. With so much uncertainty ahead, it may be wise to buy now if you’re financially ready rather than waiting to see how prices fluctuate over the coming months.
- Watch your trade-in value. Different dealerships have different inventory needs, so always shop your trade-in. The more you get on a trade-in, the more you can put down on a new vehicle purchase.
- Keep an open mind. A lot has changed over the last several years, and many automakers have revamped their lineups. With many models offering similar tech and safety features, compare costs rather than sticking to one brand.
How much should your next vehicle cost?
Beyond calculating your ideal monthly payment, you can also use these guidelines to calculate the amount you can afford to finance the next time you purchase a new or used car.
The Edmunds car affordability calculator is a good place to start when determining how much you can afford to pay.
- First, input your target monthly payment following the 15 percent maximum to ensure you do not over-extend your salary when paying for your vehicle.
- Estimate your interest rate based on auto loan industry averages for your credit score. The better your credit score, the more competitive your interest rates will likely be.
- Finally, try different loan terms to see how they impact the amount you can afford. Longer terms mean a lower monthly payment — but more interest paid over time.
If you plan on trading in your old vehicle, include it as a down payment. A larger down payment offsets your monthly payment because it allows you to finance less. According to the most recent Edmunds data, the average down payment for a new vehicle was $6,856 in the fourth quarter of 2024.
However, determining how much you can afford requires thinking beyond the sticker price. While it is essential to stay within budget, vehicles cost more than just your monthly loan payment. You’ll also pay for maintenance, insurance, fuel and more. For example, an inexpensive vehicle might be appealing, but repairing it can cost you more in the long run if the car isn’t reliable.
As a rule of thumb, your total monthly cost should not exceed 20 percent of your monthly payment. While crunching the numbers may feel like a lot of work, it helps you purchase a vehicle within your budget and reduces your risk of falling behind and having your vehicle repossessed.
Ideal payment based on your income
According to Karen Bennett, senior consumer banking reporter at Bankrate, your monthly vehicle payment should not exceed 10 to 15 percent of your salary.
To find this range for your salary, divide your annual pre-tax take-home salary by 12. Multiply that number by 0.1 to find the low end of the range or 0.15 to find the high end.
| Salary | Maximum monthly car payment (10%) | Maximum monthly car payment (15%) |
|---|---|---|
| $20,000 | $167 | $250 |
| $40,000 | $333 | $500 |
| $60,000 | $500 | $750 |
| $80,000 | $667 | $1,000 |
| $100,000 | $833 | $1,250 |
Keep in mind that your payment is only one part of your car budget. The general rule of thumb is to keep every cost — like insurance, gas and maintenance — under the 15 percent range to ensure you aren’t overspending.
Bankrate insight
To find the average monthly payment you can afford, divide your salary by 12. For example, the average salary in early January was $61,984, according to BLS data.
- $61,984 ÷ 12 = $5,165.33
Once you have your monthly salary, multiply it by 0.1 and 0.15 to determine your affordable monthly payment range.
- $5,165.33 x 0.1 = $516.53
- $5,165.33 x 0.15 = $774.80
So, the most affordable monthly payment for the average salary at the end of 2024 is between $516 and $775.
One effective way to ensure your finances stay in check is to follow the 50/30/20 rule, Bennett explains.
“You’ll allocate half your paycheck to essential expenses like rent, food and transportation,” she says. “Another 30 percent will go toward nonessentials like dinner out and streaming services, and 20 percent will be put into savings.”
What to do if your car payment is too high
If your current monthly payment is overextending your budget, there are ways out. Consider refinancing, trading in or reaching out to your lender as potential ways to make your payment more manageable.
- Refinance your loan: Compare current auto loan refinance rates to find a loan that better fits your budget. Start by calculating potential savings by lowering your potential interest rate or extending your loan term.
- Trade in your vehicle. This year will be much friendlier to borrowers interested in trading in their vehicle compared to last year. By trading in your car, you can get a less expensive vehicle, thus reducing your monthly costs. Consider working directly with the dealership you purchased from to secure the best deal.
- Talk with your lender. Your lender may be able to help you if you can’t afford your car payment. It’s in the lender’s best interest to get paid for the money it has loaned you, so it may be willing to modify your loan or offer to defer payments.
Bottom line
A healthy financial plan includes a budget that you can stick with. If you plan on financing a car in the near future, making your monthly payment affordable should be a top priority. Strive for a car payment that does not exceed 15 percent of your net or take-home income. If you think your current car payment is too high, contact your lender to discuss your options or consider trading your vehicle in for something more affordable.
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