The Average Auto Loan Payment Is $725. Here's How to Spend Less on Your New Car

Many of us need a car to get to work, run errands, and generally function. So it's reasonable to call a vehicle an essential expense. 

But just because you need a car doesn't mean you can easily afford one -- especially today. Limited supply has driven the cost of vehicles up. And it's also gotten very expensive to finance a vehicle now that interest rates are up following hikes from the Federal Reserve.

In fact, Experian, one of the three major credit bureaus, says that the average monthly auto loan payment for a new vehicle is $725. That's up from $650 in 2022.

An auto loan payment that size, however, might wreak serious havoc on your finances. It's best to find ways to spend less on a car so you can keep your payments down.

Shop around and set priorities

You may not be able to find a reliable vehicle that comes with a monthly auto loan payment of $350. But there are ways to avoid spending as much as $725.

First, take your time trying to find a new vehicle if you have that luxury. Visit different dealerships, test drive different models, and compare your costs. 

Next, set priorities on the features you want. If seating is the most important item on your list (meaning, you need to be able to fit a certain number of passengers), first focus on cars that meet that need. Then, work your way down your list.

The more features you're willing to forgo, the less you might end up spending. But it'll help to make a list in order of priority so you can better make that call. For example, if heated seats are more important to you than a better sound system, it's good to know that going into your vehicle search.

Boost your credit score before buying a car

Whenever you need to finance a purchase, whether via an auto loan, home equity loan, or personal loan, the higher your credit score is, the more competitive a borrowing rate you're likely to snag. And the lower the interest rate you get on your auto loan, the easier it might be to afford your monthly car payments.

You can boost your credit score by doing a few things. First, avoid being late with bills. Your payment history carries more weight than any other factor when calculating your credit score (35%), so it's important to focus on submitting payments for bills when you're supposed to.

Next, if possible, whittle down your current credit card debt. Even if you're making your monthly payments on time on your credit cards, the simple act of having too much of a balance relative to your total spending limit could drag your score down.

Finally -- and this is an easy one -- check your credit report for errors. If you see something like a delinquent account that was never yours to begin with listed on your credit report, you can work with the bureau in question to get that mistake corrected. And that could lead to a nice bump in your credit score.

For many people, a $725 monthly car payment is a stretch. But you don't necessarily need to buy a car and take on a payment that high. If you do your research and prioritize the features you're looking for, you may find that your monthly car payments are a lot lower and far more manageable.