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Bottom Line Up Front

  • There are a variety of factors that dictate the cost of your monthly car loan payment.
  • You have more control than you think when it comes to lowering monthly car loan payments.
  • It’s a smart idea to take control of your personal finances before you start car shopping.

Time to Read

4 minutes

October 12, 2023

Thinking about buying a car? The biggest part of car buying comes down to what you can afford—not only what you can put as a down payment, but also in terms of your monthly car payment. It’s easy to fall into the trap of financing a great car, only to find out a few months down the line that your monthly payment isn’t compatible with your budget.

As you think about your car budget and what you can afford, here’s a look at 5 factors that can have a big impact on your monthly payment amount.

  1. Vehicle Purchase Price

    The purchase price of your vehicle is the biggest factor affecting monthly payments. The more you finance, the more you’ll pay each month. Keep in mind that this goes beyond the sticker price, too. The total purchase price of your vehicle is how much you’re responsible for after all taxes, title and fees are tallied. Often, the price you see on the windshield at the dealership is below the actual price you’ll pay when all is said and done.

    If you were to finance a $30,000 vehicle at 8% over a 60-month term, you’d pay roughly $608/month. However, if you bought a vehicle at $26,000 under the same terms, your monthly payment would fall to $527.

  2. Down Payment Amount

    The amount of money you put down against the purchase of the vehicle can have a huge impact on monthly payments. The more you put down, the lower your monthly payments will be. While it’s easy to put down the minimum amount and finance as much as possible, you’ll only end up raising your monthly payment—and paying more in the long run.

    Say you finance a new car for $30,000 over a 60-month term. If your interest rate is 8% and you put down $0, you can expect to pay $608/month. However, if you put down $3,000, your monthly payment drops to $547.

  3. Your Credit Score

    Your credit score can have a major impact on your monthly car payment because it affects financing. The higher your credit score, the lower the interest rate you’ll be offered. Before you start car shopping, check your credit score and address any negative marks. It’s also smart to apply for preapproval, to get a sense of the rate you qualify for.

    A lender may offer to finance your $30,000 car purchase at 8% if you have a credit score of 750. However, if your credit was considered 550 (sub-prime), that same lender might only offer 13%.

  4. Term of the Loan

    The term of your loan is how long you choose to finance for—usually 48, 60 or 72 months. The longer your loan term, the lower your monthly payment should be. Keep in mind, though, that a longer loan term also means you’ll pay more in interest over the life of the loan. Try to choose a term that fits within your budget and also allows you to pay the loan off as quickly as possible.

    For example, if you finance $30,000 over a 60-month term at 8%, you can expect to pay $608/month. With a 48-month loan, that number rises to $732; at 72 months, it drops all the way down to $526.

  5. Interest Rate

    Interest rates are the fees charged by lenders for borrowing money. The lower the interest rate, the lower your monthly payment should be. Before you choose a lender, shop around for the best interest rates. Look for promotions and deals, and don’t be afraid to negotiate with lenders to get the best rate possible. Even a single percentage makes a difference over the life of your loan.

    Financing a $30,000 car at 8% over 60 months would make your monthly payment roughly $608/month. At an interest rate of 13%, that monthly payment jumps to $683 over the same term.

How Can I See What My Monthly Payment Could Be?

Your loan amount, interest rate, down payment and loan term are among the factors used to determine your monthly car loan payment. A good way to estimate what your car loan payment could be is to use an online auto loan calculator such as Navy Federal Credit Union’s Auto Loan Calculator.

It All Comes Down to Your Budget

Simply put, being able to finance a vehicle makes it easier for us to afford them. Paying monthly rather than in one lump sum takes a big burden off of most people. But that monthly payment can become a burden of its own if it’s too big for your budget. Consider how the above 5 factors affect how much you’ll pay if you decide to finance a vehicle and factor them into your budgeting process.

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This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.