Professional, honest advice from one of our bankers that can help you find out.
Shopping for a new car can be stressful—and for good reason. Statistics show that it’s easy to end up with more than you can afford, leading to even greater feelings of anxiety down the road. A record seven million Americans are currently 90 days or more behind on their car payments, according to the Federal Reserve Bank of New York†. Meanwhile, average monthly car payments are at an all-time high of $550 per month‡.
At Huntington, we know how important it is to feel comfortable with a big-ticket decision like a new car. Marissa Brenton§, a branch manager at The Huntington National Bank in Rochester Mills, Michigan, offers advice to help you avoid getting in over your head.
Marissa Brenton (MB): Most people only budget for their monthly car payment, but depending on where you live, you could be paying a significant amount per month for car insurance. So get a quote from your insurance company before committing to a particular car.
Then map your most frequent driving routes, like your commute and regular trips to shop, go tothe gym, or a visit to a friend’s house. Use that mileage and route information to calculate how much you’ll pay per month on things like gas, parking, and tolls.
Next, subtract all that from the total amount you can afford to spend on a car each month, and that’s the real monthly payment amount you most likely can afford. Then use Huntington’s calculator to help you figure out how much you can spend on a car.Q: I’m thinking about leasing instead of buying. What cost factors do I need to consider?
MB: Since driving more than the number of miles per year in your contract will cost you more, it’s important to consider whether how much you drive is likely to change over the course of your lease. Will you be moving? Do you expect a job location change? Will anyone else be using your car and adding to your usage? Things like that can really affect your cost.Q: I’m saving toward a down payment. Is there a rule of thumb about how much I should plan to put down?
MB: Putting more money down can help you get a car at a more affordable payment. Our auto calculators can help show you how different down payment amounts will affect your monthly payment. But be careful not to pour all your savings into a down payment and have nothing left. For example, if you have $7,000 saved, it might make sense to put $5,000 toward a car payment and keep $2,000 for an emergency fund.Q: My car dealer suggested a longer-term loan to make my car payment more affordable. What are the pros and cons of extending the loan term?
MB: The longer the loan term, the smaller your payments may be, but you could also end up paying more than the value of the car. For example, a 36-month loan on the average amount car buyers borrow ($31,707) will cost a total of $34,360. Jumping up to a 60-month loan term will increase that number to $36,151, while a 72-month loan term will bring it up to $37,002.
And remember that new cars can depreciate quickly. You don’t want to be in a position where you still owe payments on a car that is worth less than what you owe on it. So I usually suggest that people stay within the three- to five-year range.Q: What else can I do to help protect myself financially during the car shopping process?
MB: If you’re not able to put a lot of money down on a car or need to take a longer-term loan to make the payment more affordable, you may want to consider asking your car insurance company or dealer about gap insurance.
That coverage can help kick in if you total the car during the window of time when you owe more on the car than the assessed value—the amount your regular insurer would pay out on it. Gap insurance can help cover the difference, which can really come in handy.