Here's an Easy Way to Get a Lower Car Payment

As interest rates and car prices have gone up, so have car payments. The average monthly payment on a new car loan was $716 in the fourth quarter of 2022, according to Experian. Even on used car loans, the average monthly payment was $526. And those are just the averages. Some consumers with expensive cars pay more than $1,000 per month.

The good news is that many of the factors that determine your car payment are in your control. In fact, there's one move you can make that could help you save big, no matter what kind of car you buy and how much you borrow.

Higher credit score, lower car payment

Your credit score plays a significant role in your car payment. Consumers in the super prime score range (781 to 850) pay an average of $683 per month for new car loans and $505 per month for used car loans. That's savings of $33 and $21 per month, respectively, compared to the overall averages.

Here's a full breakdown of car payments by credit score:

Car buyers with the highest credit scores pay the least for both new and used cars. The difference in averages is as high as $70, between super prime and nonprime new car buyers.

One oddity you may have noticed is that consumers with the lowest credit scores don't have the highest average car payments. The most likely explanation is that those consumers buy cheaper cars and get smaller auto loans.

Regardless, auto loan rates depend largely on your credit score. All other things being equal, a better credit score will qualify you for a lower interest rate and a lower monthly payment.

How to improve your credit score

A high credit score has lots of personal finance benefits, so it's always a good goal. If you want to raise your credit score before you buy a car, there are a couple of things to do.

The fastest way to boost your credit score is to lower your credit utilization ratio. Your credit utilization is your credit card balances divided by your credit limits. The lower this ratio is, the better. It's widely recommended to keep credit utilization under 30%, because any higher can hurt your credit.

The good news is that your credit utilization is updated monthly. If you go from, say, 80% utilization to 20%, that can drastically improve your credit within a month. Here are a few ways to lower credit utilization:

• Pay down your credit card balances. If you have any way to pay down your cards, such as money you can use from your savings account, it's well worth it.
• Pay your credit cards weekly. Credit utilization is reported once a month. If you make weekly credit card payments, it can keep your balances lower when your utilization gets reported.
• Request a credit limit increase. Having higher credit limits will lower your credit utilization. Ask all your card issuers for a credit limit increase. Many let you do this online, but you can also call in and do it by phone.
• Open a new credit card. If you're approved, the new card will add to your credit limits. For the best results, open a balance transfer card that you can use to refinance your credit card debt.

Also, make sure to pay your credit cards on time every month. Payment history is the largest factor in your credit score. Every on-time payment is good for your credit score, and late payments can have a huge negative impact.

Saving on your car payment

An expensive car payment is something to avoid whenever possible. It takes up a large portion of your income, which impacts how much you can save and invest.

Fortunately, there are several ways to get a lower car payment. The price of the car you buy is what matters most, so don't stretch yourself too thin for a car you can't afford. A large down payment also helps, which is a good incentive to save as much as you can before you buy. And as the data shows, it helps to have a high credit score.