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Car payments can take a significant bite out of your monthly budget. According to Edmunds, the average monthly car payment in the second quarter of 2023 was $733 for a new vehicle and $569 for a used vehicle.

While knowing the average car payment can be helpful, keep in mind that the actual amount you’ll pay on a car loan will depend on multiple factors, including the loan amount, interest rate, type of car you buy, your credit score, and the length of the loan.

So how do you know if you’re getting (or you got) a good deal? Read on to learn more about average car payments and what to do if you’re paying too much — or more than you can currently afford.

What Is a Good APR on a Car?

Every auto loan has an annual percentage rate (APR), which is the annual cost you’re charged by the lender for borrowing money. A loan’s APR includes the loan’s base interest rate plus any added fees, so it represents the true cost of the loan.

In the second quarter of 2023, the overall average auto loan APR was 7.1% for new cars and 11% for used cars.

The actual APR you receive for an auto loan will be based on several factors, including your income, credit history, and credit score. Typically, your credit score will have the greatest influence over the rate you’ll get, since lenders use it to gauge how likely you are to repay the loan. Generally speaking, the higher your credit score, the lower your car loan APR will be.

For example, the average APR for someone with a credit score between 781 to 850 is 5.18%, whereas the average rate for someone with a credit score between 300 and 500 is 14.08%


💡 Quick Tip: A low-interest personal loan can consolidate your debts, lower your monthly payments, and help you get out of debt sooner.

What to Do if Your Car Payments Are Too High?

If you’re paying more than the average car loan payment, or simply more than you can comfortably afford, here are some ways you may be able to lower your payment.

•   Refinancing When you refinance a car loan, you replace your current loan with a new one and hopefully lower your car payment in the process. You may be able to qualify for a lower APR on a new loan and/or extend your loan term, which can lead to a lower monthly payment. Keep in mind, though, that if you extend your loan term, you may end up paying more in total interest over the life of the loan.

•   Selling or trading in your car If your car is beyond your budget, you might consider selling it and then buying a cheaper car. Trading it in at a dealership can be the simplest option, though you might get a better price with a private sale. Just keep in mind that selling a car that has a loan attached to it can be complicated. You‘ll want to check with your lender to make sure you aren’t breaking any terms of your loan contract.

•   Making extra payments whenever you can Consider putting the occasional windfall (such as a tax refund, bonus at work, or cash gift) toward your loan principal. This will reduce the total amount that you owe, which, in turn, can lower your monthly payments. Before you try this tactic, however, make sure your lender will apply extra payments directly to your loan’s principal and not to interest.

Recommended: Smarter Ways to Get a Car Loan

What if Your Car Payment is Lower Than Average?

If your car payment is lower than the average, that doesn’t necessarily mean you won’t benefit from refinancing. This is especially true. If your credit has improved or rates have dropped since you originally took out your car loan.

You might also be able to lower your monthly car payments if you initially received your loan from the dealer. APRs offered by car dealers tend to be higher than those offered by banks and credit unions. If you took out your initial loan through dealer-arranged financing, refinancing with a different lender could potentially get you a lower rate, and a lower monthly payment.

If your budget is stretched and you really need to lower your payments, refinancing to a longer repayment term can help lower your payments, even if you don’t get a lower interest rate. Just be aware that you’ll pay more in total interest because you are extending the length of the loan.


💡 Quick Tip: Just as there are no free lunches, there are no guaranteed loans. So beware lenders who advertise them. If they are legitimate, they need to know your creditworthiness before offering you a loan.

Using a Personal Loan to Refinance an Auto Loan

Many people assume that the only way to refinance an auto loan is with another auto loan. But that’s not necessarily the case. In fact, taking out a personal loan can be an option worth considering, particularly if you have excellent credit and can qualify for low APRs.

Personal loans are available through banks, credit unions, and online lenders and can be used for virtually any use, including debt consolidation, home repairs, and other large purchases. This makes it different from an auto loan, which can only be used to pay for a car.

If your auto loan rate is higher than the rate you can receive on a personal loan, using a personal loan to refinance your auto loan may be a way to lower your car payments.

Another reason you might refinance with an unsecured personal loan is that these loans don’t require that you use your car as collateral. That means if you’re unable to make your payments, you won’t lose your vehicle (though your credit score will likely take a significant hit).

Also, if you plan to sell your car, it can be complicated to sell a car with an auto loan attached. If you use a personal loan to pay off your car, you’ll receive the title from your auto lender, which enables you to sell it more easily.

For a personal loan to make sense for an auto loan refinance, however, you’ll need to qualify for a low rate. Just like you shopped around for an auto loan, it’s a good idea to compare personal loan rates, terms, fees and borrowing limits to ensure you find a lender that will best fit your needs.

As you compare lenders, consider a SoFi Personal Loan. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

You’ve likely made some impulse purchases in your life — or at least purchases you later realized weren’t all that wise or well thought out. It can be easy to get caught up in the excitement of buying something new or “just marked down,” that you lose sight of your better instincts — not to mention your budget.

One way to avoid making impulsive or bad buying decisions is to hit pause just before you make a purchase to ask yourself a series of simple questions. This extra step forces you to step back and honestly consider how the potential purchase fits into your life. You might ultimately decide you don’t want the item after all. And, if you do decide to buy it, you can feel confident that you’re doing it for the right reasons.

9 Questions To Ask Yourself Before Buying Something

Knowing some key questions to ask yourself before you buy something can help ensure that you spend according to your values and cut down on purchases you’ll regret later. After all, the last thing you want is to spend money on things that don’t really enhance your life — and may add to your debt (especially if you’re already paying off some debt).

Here are some key pre-purchase questions to consider.

1. Is This a Want or a Need?

A great first question to ask is whether your prospective purchase fulfills a need or is just something you want. If it’s an item you need — and you can afford it — then you might just go ahead and buy it. If, on the other hand, it fills a want, it’s a good idea to continue vetting the purchase with the questions that follow.

2. What Do You Gain From Buying This?

Consider what you hope to gain from making the purchase. Is it the admiration or approval from other people? Does someone you know or follow on social media have it? Is this something that will genuinely improve your quality of life?

Research suggests that people feel more satisfied when they spend money on things or experiences that mean something to them and reflect their values.

Recommended: What Is FOMO Spending?

3. Is This Something That Will Actually Sell Out?

Though retailers will often make you think you need to act quickly (due to low stock), there’s a good chance that the items that you’re thinking of buying will still be available at a later date. If you’re feeling pressured to buy due to a limited-time sale, keep in mind that sales pop up all the time. Waiting for the next one could save you even more money, as you may decide you don’t really want it that much.

4. Can You Get It Used or for a Better Price

If you’re thinking of pulling the trigger on a full-price item you don’t need right away, consider whether you may be able to find a better deal. For example, you might:

Buy Used

If you’re looking at a piece of equipment (like sports, exercise, or baby gear) or furniture, keep in mind that you may be able to find it in great condition on a second-hand marketplace online or even a yard sale.

Find Discounts

While buying used is not everyone’s cup of tea, buying on sale should be. These days, there are websites and apps that can help you do quick price comparisons to find the best deals. Some apps will even alert you when the price for a wanted item drops.

5. Do You Own Something Similar?

If you were to look at what you already own, you might be surprised to find how often you purchase nearly the same items over and over again. Buying similar items is totally understandable. We all know what makes us comfortable and what we tend to wear or like, so we gravitate to similar-looking clothes, shoes, home decor, and so on.

If you already have several coffee mugs, jean jackets, baskets, whatever that are similar to your prospective purchase, you may want to pass.

Recommended: 7 Strategies to Stop Spending Money

6. Why Do You Want to Buy This Now?

Sometimes there is a clearcut reason to make a purchase, even an impulse purchase. You might be at a store and remember you need hand soap or a certain tool to make a repair. But if there isn’t a clear reason for making this purchase right now, you may want to pass.

Recommended: How to Stop Overspending: 9 Tips

7. How Often Will You Use It, Really?

If you will only use or wear the item you’re thinking about buying once, or even a handful of times, you may want to rethink the purchase. It’s possible you can get by with something you have, can rent the item, or can borrow it from a friend or neighbor. This can end up saving you money — and potential buyer’s remorse.

8. If the Item Was Full Price Would You Still Buy It?

A sale price can make an item look particularly appealing. You might even think you’d be a fool to pass it by. But it’s important to put the price tag to the side for a moment and consider whether or not you really want and love the item. Would you even be considering it if it were full price? If the answer is no, it’s likely you can forgo it.

9. Would It Be Better To Put the Money Elsewhere?

If you can ask yourself this question, then you’ve arrived. You’re thinking of the big picture and wondering whether there may be other things that are more important than what’s in front of you. This involves delaying gratification and knowing how to control your spending habits.

The Psychology Behind Reflecting Before Purchasing

One common reason why we shop for new (and often similar) things is because we don’t fully appreciate the things we already possess. But there is a way you can turn this psychology around.

Before you make a purchase, consider whether or not you already own something that can fulfill the same purpose. If you do, next think about whether there is a reason you need something similar. If you can’t, you can probably easily pass on the purchase. The process of reflection not only avoids an unneeded expense but allows you to re-focus on the item you already have and appreciate it more.

How Budgeting Can Curb Compulsive Spending

Creating a budget involves looking at where your money is currently going and making sure that your spending aligns with your priorities. There are many different kinds of budgets but one simple framework is the 50/30/20 rule.

The idea is to divide your monthly income into three categories, spending 50% on needs, 30% on wants, and 20% on savings (and debt payments beyond the minimum). This set-up helps curb compulsive spending because you only have so much “fun” money to spend each month. It also allows you to spend money without feeling guilty, since it’s baked into the budget.

Budgeting and Saving With SoFi

If you like the idea of managing both your spending and saving all in one account, take a look at SoFi.

When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

FAQ

How do you determine if you should buy something?

A good first step is to determine whether a prospective purchase fulfills a need or is simply something you want. If it fills a need, you can go ahead buy it, as long as you can afford it. If it’s a want, you might next consider why you want to buy it. Also think about whether you may already have something similar, and whether the money might be better spent on something else.

Should a budget include flexibility for impulse purchases?

Yes. A budget will typically allot a certain amount of money just for “fun” each month. This frees you up to make the occasional impulse purchase without feeling guilty or worrying that it will hurt your long-term financial health. In fact, building in flexibility to your spending plan can help you stick with it.

What questions should you ask yourself before buying something?

Some key questions to ask yourself before you make a purchase include:

•  Do I need it?

•  What do I gain from buying this?

•  Do I own something similar?

•  If the item was full price would I still buy it?

•  How often will I use it, really?

•  Could I get it used or for a better price elsewhere?

•  Is there a better way I could use this money?

How do you stop impulse buying psychology?

One effective strategy is to establish a waiting time before you make any discretionary purchases. If you see something you want to buy, put the purchase on pause for a week (or more). Tell yourself that if, at the end of the waiting period, you still want the item and can afford it, then you can go ahead and buy it. You may find, however, that by delaying gratification (and the purchase), you lose interest in the item and opt not to buy it after all.

Photo credit: iStock/Talaj

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Eligible Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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