June 9, 2023

The average price of new vehicles is rising every year. If you’re like most people, you can’t afford to pay for a new car with cash. This means that you will need to finance your next vehicle, and financing means taking out a loan. How much will your loan be? There are a few factors that you will need to consider.

Applying for a Car Loan

Car loans are relatively straightforward when you break them down. You can get a car loan from a credit union, bank, or lending institution. Car dealers can help you apply for a loan.

The company that loaned you the money will pay a lump sum for the vehicle. Technically, they are the ones who own the car until you pay them back. Once the loan is paid, you will have covered the cost of the vehicle plus interest. Interest is the money that you will be charged by the company that gave you the car loan.

This is why your monthly car payments are more important than the actual MSRP of the vehicle. Thankfully, you can quickly determine how much you will owe a loan company each month using a payment calculator. Being aware of your monthly loan payments allows you to make sure that the payment will fit into your monthly budget. Here are some factors you should consider.

Down Payment

The down payment is the amount of money you pay for the car upfront. Because you have paid this money upfront, your monthly loan payment is lowered. The general rule of thumb is that you should pay 20% of the value of your vehicle as a down payment. It will begin to depreciate as soon as you drive your vehicle off the lot. If you don’t make a down payment, you will walk away owing more on your auto loan than what your vehicle is worth.

Trade-In Value

The trade-in value is how much the vehicle you are trading in for your new car is worth. When you trade in your vehicle, your dealer will buy your old vehicle from you and use that money against the value of your car. For example, say you have a trade-in that’s worth $30,000. You owe $15,000 on an existing loan. Then, your dealer will buy the car from you and apply $15,000 against the cost of your new car. This will lower your payment.

Interest Rates

Interest rates will have the most significant impact on your monthly car payment. Your interest rates will vary based on how much of a risk you represent to the company that’s loaning you money. If you have a low debt-to-income ratio, good credit, and long-term employment, you are a lower risk and qualify for a lower rate. It’s possible to get a car loan with bad credit. You should expect to pay higher interest and monthly fees, though.


When purchasing a new car, look beyond the MSRP. Your trade-in value, interest rates, down payment, and the cost of the vehicle all work together to determine the amount of money you will need to spend every month on your car payments.