5 Tips to Lower Your Car Payment as Average Costs Reach a Record High

New car buyers’ budgets are being pushed to the limit by rising auto loan rates and high vehicle prices.

The average monthly payment for a new car reached a record high in the second quarter (April to June), according to a new report from Edmunds.

Even though car prices have declined in the past year, the average monthly car payment increased to $740, up from $733 in the second quarter of 2023.

Part of the increase is attributable to auto loan rates, which jumped to an average of 7.3%. The average was 7.1% a year ago, and it’s been been above 7% for six quarters in a row now.

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In this tough market, buyers are making smaller down payments, which also means higher monthly payments. The average amount buyers put down decreased to $6,579 in the second quarter. That was the lowest level since 2022 and a drop from $6,823 a year ago.

There is some good news for shoppers as the supply of new cars has gotten much better in the past year, leading to more discounts. But vehicle affordability remains a challenge for just about anyone financing their purchase.

"In theory, improved inventory and growing incentives should paint a more consumer-friendly picture of the market, but the reality is most Americans can't buy their cars with cash, and increased borrowing costs continue to be a major roadblock when buying a new vehicle,” Jessica Caldwell, head of insights at Edmunds, said in the report.

Strategies to lower your car payments

Car shoppers financing a new car should thoroughly research their options and remember to stick to a budget that they can afford. Here are some strategies to get a lower monthly payment for your next new car:

• Make a bigger down payment: Car buyers are committing to higher monthly payments as the average down payment has decreased. But putting too little down can be a mistake: By saving more money for a bigger down payment, your monthly responsibility will be more manageable.

• Find the best financing option and incentives: New car buyers can compare financing options from different lenders like banks and credit unions, and cross those with the options that dealerships offer. In some cases, car buyers with good credit can find 0% or sub-2% loan rates through subsidized dealership financing promotions. According to RealCarTips.com, financing offers are gradually improving and there are more than two dozen 0% APR promotions running in July. (Some of these deals are only available for shorter loans, which means the monthly payments may not be particularly affordable.)

• Negotiate: As the inventory of new cars improves, shoppers have more leverage to negotiate at the dealership. The extra time it takes to haggle with several different dealers could save you hundreds or even thousands of dollars over the life of a multi-year loan. You can also explore special discounts and cash back offers that may be available in your area.

• Choose the right car: Despite high average car prices, there are still plenty of options under $30,000, several of which made Money’s Best Cars of 2024 list. Shopping for a more basic or less popular vehicle could be the right move for your wallet.

• Consider your loan term: Edmunds reports that buyers are opting for longer loan terms to reduce their monthly payments. About 70% of loans in the second quarter had terms over 60 months. Keep in mind, however, that you’ll pay more in interest over the course of the loan with a longer term.

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