The average new car payment in the US is over $700/month. The average used car payment is around $520/month. These are enormous monthly obligations that directly compete with debt payoff capacity. Here's how to think about them strategically.
The True Cost of a Car Payment
A $650/month car payment over 72 months is $46,800 paid for a car. Add interest at a typical 7% rate: total cost exceeds $50,000. The car that was priced at $38,000 costs $50,000+ financed over 6 years. And throughout that time, the car is depreciating — worth less each year than you owe on it.
The Keep vs. Replace Question
Every car payment decision is really a question: is my current transportation situation compelling enough to justify $500-700/month, or could that money transform my debt and financial situation? For most people, a reliable used vehicle worth $8,000-15,000 — bought outright or with a short, low-rate loan — provides the same fundamental transportation with a fraction of the monthly cost.
Refinancing an Existing Car Loan
If your credit score has improved since you took out your car loan, refinancing at a lower rate saves meaningful money. On a $25,000 loan with 30 months remaining: dropping from 9% to 5% saves approximately $1,500 in interest. The refinance application takes 20 minutes.
The "Drive it Until It's Paid Off" Strategy
Once a car loan is paid off, resist the temptation to immediately replace the vehicle. A paid-off car with maintenance costs of $100-150/month is dramatically cheaper than a new payment of $600+/month. Driving a paid-off vehicle for 2-3 years after payoff is one of the most effective ways to redirect money from car payments to debt payoff or wealth building.