How much should my car payment be?

A common guideline is to keep your total car costs — payment, insurance, gas, and maintenance — at no more than 15–20% of your monthly take-home pay. For the payment alone, many planners suggest no more than 10–15% of net monthly income. On a $4,000 take-home, that means $400–$600 for the payment and $600–$800 for all vehicle costs combined.

What is the average car payment in the US?

As of 2024–2025, the average new car payment is approximately $735/month and the average used car payment is approximately $525/month, according to Experian's State of the Automotive Finance Market reports. These averages are widely considered too high — average does not mean advisable.

Is a 72 or 84-month car loan a bad idea?

Generally, yes. Longer loan terms lower the monthly payment but significantly increase total interest paid and create negative equity risk (owing more than the car is worth). A 6-year-old car with 4 years of payments remaining is a common financial trap. Most financial advisors recommend keeping auto loans to 48–60 months maximum.

What should I do if my car payment is too high?

Options: refinance if your credit has improved since the original loan; trade down to a less expensive vehicle; make extra principal payments to pay off the loan faster; or simply absorb it and avoid future car buying mistakes. Trading a car when you are underwater (owe more than it is worth) typically makes the situation worse by rolling negative equity into the next loan.

How much car can I really afford?

A useful rule of thumb: the total price of the vehicle should not exceed 35–50% of your gross annual income. Someone earning $70,000 can comfortably afford a $25,000–$35,000 car. Many financing arrangements push buyers into vehicles well above this range — the monthly payment appears manageable while the total cost is not.

Is My Car Payment Too High?

The Rule of Thumb

Total vehicle costs — payment + insurance + gas + maintenance — should not exceed 15–20% of monthly take-home pay.

For the payment alone, the target is typically 10–15% of net monthly income.

Monthly Take-Home	Max Payment (15%)	Max All Car Costs (20%)
$3,000	$450	$600
$4,000	$600	$800
$5,000	$750	$1,000
$6,000	$900	$1,200
$8,000	$1,200	$1,600

These are ceilings, not targets. Staying meaningfully below them is financially healthier.

Why the Average Car Payment Is Not a Guide

The average US car payment is over $700/month for new cars and around $525/month for used vehicles. These numbers reflect what people are doing, not what is financially sound.

A $735/month car payment on a $4,500/month take-home is 16% of income — only for the payment, before insurance, gas, and maintenance. When all vehicle costs are included, many American households are spending 25–35% of income on transportation.

The fact that “everyone” is carrying large car payments normalizes a behavior that significantly impairs savings rates and wealth accumulation.

Loan Term: The Hidden Cost

Extending a loan term lowers the monthly payment while dramatically increasing total interest paid and the risk of negative equity.

Example: $35,000 car at 7% interest

Term	Monthly Payment	Total Interest Paid
36 months	$1,081	$2,915
48 months	$837	$4,179
60 months	$693	$5,580
72 months	$595	$7,836
84 months	$530	$10,509

The 84-month loan nearly triples the interest cost of the 36-month loan. More significantly, a car financed over 7 years loses most of its value before the loan is paid off — leaving the owner in negative equity for much of the payoff period.

Recommendation: Keep auto loans to 48–60 months maximum. If you cannot make the 60-month payment work, the vehicle is too expensive for your budget.

Signs Your Car Payment Is Too High

It is above 15% of your net monthly income
You are not saving for retirement because of car payments
You rolled negative equity from a previous car into this loan
The payment is on a 72- or 84-month loan
You cannot make extra payments without financial stress
You are paying more in car costs per month than you are saving

What to Do If You Are Overextended

Refinance

If your credit score has improved since you took out the loan, or interest rates have dropped, refinancing can lower your rate and payment. Use the shorter-term option if possible — refinancing into longer terms saves monthly payment but costs more overall.

Make Extra Principal Payments

Paying even $50–$100 extra per month toward principal shortens the loan and reduces total interest. More importantly, it reduces the time you spend underwater (owing more than the car is worth).

Avoid the Temptation to Trade In While Upside Down

If you owe $22,000 on a car worth $17,000, you have $5,000 in negative equity. Trading it in does not eliminate that debt — dealers roll it into the new loan, making the new car payment even higher. This cycle keeps many people perpetually overextended on vehicles.

Accept It and Improve Next Time

Sometimes the best move is to stay with your current car, continue making payments, and apply the lessons when you next purchase:

Buy used (3–5 years old, significant depreciation already absorbed)
Keep terms to 48–60 months
Put 20% down
Apply the 15% take-home benchmark before financing

The Total Cost of Ownership View

The payment is only part of vehicle cost. A rough annual total cost for a financed vehicle:

Cost Element	Annual Estimate
Loan payment ($600/mo)	$7,200
Insurance (full coverage)	$1,800–$2,400
Gas (~12,000 miles/yr, $3.50/gal, 28 mpg)	$1,500
Maintenance & tires	$800–$1,500
Total annual cost	$11,300–$12,600

That is roughly $1,000/month in cash outflows for a single vehicle. For many households, this is the second-largest budget line after housing.