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Car Loans

Auto Loans

Transportation is a need. Although buying a car is not the only method to obtain transportation, most people purchase new or used cars to satisfy this need. There are three main ways in which you can purchase a vehicle.

Cash Purchase
Auto Loan
Car Leases

Discover the methods to buying a car (PDF).

As cars can be expensive, people seek loans to purchase automobiles. Car loans can be obtained for both used and new cars. Leases are another method to obtain transportation. According to, auto loans are the third largest debt category for Americans. These rank just below mortgages and student loans.

How can I save enough to purchase a car with cash?

Each month set aside a specific amount in your budget for a newer car. Determine the cost of the car you want to purchase and how long you must save for the purchase. This will create a sinking fund for your new car.

Ex: In 36 months, you want to purchase a reliable used car for $15,000.

$15,000/36 months = $416.67

In this example, you need to put $416.67 aside in a savings account for your car purchase. Use an automatic transfer into a savings account to make it easier to save. Watching the account grow will be an encouragement to work towards your car savings goal.

What is the average car payment?

Chart of average car payments

The average new car payment is almost $200 more expensive per month than a used car in 2019 (Experian Sate of the Automotive Finance Report). By 2022, the average new car monthly payment increased to $644. Your car payment must be factored in your budget. Experian reports that the average car payment loan term is just below 72 months (about 6 years). Increasing your down payment on the car or buying a used car can help you reduce the monthly payment and the length of the loan. The longer the loan is the more you will pay in interest.

Remember you can make changes to the type of vehicle you drive. Could you save money by selling your new car and purchasing a used car that is less expensive, yet safe and reliable? Do you live on the peninsula, and could you walk? If so, you could eliminate your car payment, car insurance, and gas budget line-items.

What changes could you make to your transportation to reduce your spending?

Understand how to obtain a car loan.

Why are leases more expensive?

Although most leases usually carry the lowest monthly payment, you will not own the car at the end of the term. You have rented the car for the lease term which is usually 36 months (Experian).

In addition, you are limited to the number of miles you can drive the vehicle per year. If the mileage is exceeded, you are charged per mile. The Federal Reserve notes that most charges are 10 to 25 cents per mile over.

Consider leases carefully and make sure they are aligned with your financial goals. This does not mean you should not have a lease, but you need to understand the cost of a lease.