Buying a car is a major financial milestone. Due to the increasing purchase price of new cars, most buyers opt to finance part of their purchase with an auto loan. Learning how to manage your monthly car expenses is an essential part of your monthly budgeting process.
The monthly cost of owning a car is much more than your monthly car payment. You must also consider registration fees, car insurance, taxes, and more. In fact, when just looking at insurance costs, the average annual car insurance cost is $2,026, or $169 per month.[1]
Understanding your monthly car expenses to keep your budget on track has never been more important.
Financial experts advocate keeping your monthly car expenses lower than 20% of your income. Car expenses north of 20% of your income eat up too much of your discretionary income. Check out Smart Money’s monthly car expense calculator to see where you stand today.
Smart Tip:
In the third quarter of 2024, new car buyers financed an average of $40,713 with an annual percentage rate (APR) of 7.1%. The average monthly auto loan payment has ballooned to $736.[2]
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Monthly Car Expense Calculator
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Great work! Your car expenses are less than 20% of gross income. Keep your costs low by paying off your auto loan.
Wait! Car expenses over of 20% of your income can stress your budget. Keep costs low by paying off your auto loan.
How to Secure Great Financing Terms
Securing great financing terms can make you feel fantastic about your new car purchase. Before embarking on finding the best auto loan lender, here are the steps you need to take to brush up your credit score and report:
- Check Your Annual Report: Before making any major purchase, check your credit report. You are entitled to a free credit report, which you can review to analyze your full credit history. Read about how to get your free credit report.
- Dispute Any Issues: If you review your credit report and see any issues, you can file a dispute with the credit agency. They will issue corrections and work to resolve any legitimate disputes. Learn how to read your credit report.
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- Review Your Credit Score: After you analyze your credit report, the next step is to get a sense of your credit score. Find your FICO credit score or VantageScore. Your credit card or bank usually offers free access to these scores.
- Lower Your Credit Utilization: You can take several quick actions to boost your credit score quickly. You can lower your credit utilization by paying off debt or increasing your credit limits. Try Smart Money’s credit utilization calculator to see where you stand.
- Save for Your Down Payment: Unless you pay for your new car with cash, you must save for a down payment to accompany your auto loan. Saving for a down payment can take months of proper budgeting. Learn more about the best budgeting strategies.
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Frequently Asked Questions
Over the past several years, interest rates for new car loans have increased significantly. However, your interest rate is determined based on your credit score, credit report, and financing terms. A higher credit score confers better rates, while lower scores require higher rates. The average APR for a new car financed in the first quarter of 2024 was 7.1%.
If you are trying to keep a low debt-to-income ratio, you want to put as much cash into your new car purchase as possible. However, financial experts generally evoke the 20% down rule, which advocates paying at least 20% of your new car’s purchase price with cash. Financing the remaining purchase price helps ensure long-term affordability. Check out Smart Money’s debt-to-income calculator.
Car insurance is one of the highest annual recurring costs of car ownership. According to a recent survey, the average cost of full coverage is $2,150.[2] However, the average cost can vary considerably by car, age, state, and driving history.
(1) Forbes. Average Cost Of Car Insurance 2025. Last Accessed January 16, 2025.
(2) Edmunds. ‘Unrelenting’ Auto Financing Conditions Squeeze New-Vehicle Buyers in Q3 2024, According to Edmunds Experts. Last Accessed January 16, 2025.
