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Yahoo
3 hours ago
- Automotive
- Yahoo
Buying a new car? Why you might want to abide by the 20% rule
Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book. If you're buying a new car in 2025, choosing the right financing strategy can have a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck or SUV of your dreams? Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual and total payments including interest. A minimum down payment of 20% can make financing deals less expensive in the long run. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank. Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees and interest). Your monthly payment is your principal loan amount divided by your loan term (60 months in the example above) plus the fluctuating monthly cost of interest on the principal (4.99% annually in the example above). Drivers can save thousands in interest payments by putting at least 20% of a car's total cost as a down payment because of the cost of interest over you want to save even more money on your car loan and are able to manage your monthly payments after a 20% down payment, there are methods to pay the full cost of your car's financing before the end of your loan term. That said, there could be costs associated with paying off your car loan early, and it could hurt your credit score. If you pay your monthly loan amount and make additional payments on the principal, you can pay off your vehicle before the end of your loan term. That ensures you will reduce the amount of total interest you pay through financing, but it can have unintended consequences depending on your lender. Ultimately, the best way to ensure you save money on interest when financing a vehicle is to make the largest down payment possible and gain more equity in your car. The "20% rule" is a strategy to reduce the total cost of financing a vehicle, but you can tailor your financing agreement to your individual financial needs and goals. The average auto loan payment was $675 as of Q1 2025, according to the consumer credit reporting company Experian. NerdWallet says the average annual percentage interest rate for new cars is 6.70% for people with a credit score of 661 to 780. Interest rates increase significantly for drivers with lower credit scores (13.22% for a 501 to 600 score). Between rising new car prices and high interest rates, financing a new car is more expensive than ever. Before purchasing a new car, truck or SUV, drivers should: Assess the new vehicle's true cost, including taxes, fees and interest. Calculate the precise monthly auto loan payment and see if it fits within your budget. Consider how a high-percentage down payment could reduce your total financing expenditure. Brand-new cars may be fun to own and drive, but they are seldom needed; used cars car provide sufficient value for more affordable prices. Thanks to depreciation, American drivers can find great deals on used car models that cost thousands less than new. So if you're in the market for a new car in 2025, be sure to triple-check your numbers before making any financial commitment. This article originally appeared on USA TODAY: What is the 20% rule for car buying, why do drivers follow it?
Yahoo
11 hours ago
- Automotive
- Yahoo
Buying a new car? Why you might want to abide by the 20% rule
Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book. If you're buying a new car in 2025, choosing the right financing strategy can make a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck, or SUV of your dreams? Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual, and total payments including interest. A minimum down payment of 20% can make financing deals less expensive in the long run for car buyers. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank. Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees, and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees, and interest). Your monthly payment is your principal loan amount divided by your loan term (60 months in the example above) plus the fluctuating monthly cost of interest on the principal (4.99% annually in the example above). Drivers can save thousands in interest payments by putting at least 20% of a car's total cost as a down payment due to the cost of interest over time. If you want to save even more money on your car loan and are able to manage your monthly payments after a 20% down payment, there are methods to pay the full cost of your car's financing before the end of your loan term. That said, there could be costs associated with paying off your car loan early and it could negatively impact your credit score. If you pay your monthly loan amount and make additional payments on the principal, you can pay off your vehicle before the end of your loan term. This ensures that you will reduce the amount of total interest you pay through financing, but it can have unintended consequences depending on your lender. Ultimately, the best way to insure that you save money on interest when financing a vehicle is to make the largest down payment possible and gain more equity in your car. The "20% rule" is a strategy implemented to reduce the total cost of financing a vehicle, but you can tailor your financing agreement to your individual financial needs and goals. The average auto loan payment was "$675 as of Q1 2025", according to consumer credit reporting company Experian. NerdWallet says the average annual percentage interest rate for new cars is 6.70% for individuals with a credit score between 661-780. Interest rates increase significantly for drivers with lower credit scores (13.22% for 501-600 score). Between rising new car prices and high interest rates, financing a new car is more expensive than ever before. Before purchasing a new car, truck or SUV, drivers should: Assess how much the new vehicle's true cost could be including taxes, fees, and interest Calculate the precise monthly auto loan payment and see if it fits within your budget Consider how a high-percentage down payment could reduce your total financing expenditure Brand-new cars may be fun to own and drive, but they are seldom needed, as used cars car provide sufficient value for more affordable prices. Thanks to depreciation, American drivers can find great deals on used car models that cost thousands less than new car models. So, if you're in the market for a new car in 2025, be sure to triple-check your numbers before making any financial commitment. This article originally appeared on USA TODAY: What is the 20% rule for car buying, why do drivers follow it?
USA Today
11 hours ago
- Automotive
- USA Today
Buying a new car? Why you might want to abide by the 20% rule
Buying a new car? Why you might want to abide by the 20% rule When it comes to auto loans, equity can save you thousands in interest costs. Show Caption Hide Caption Should you buy a car before auto tariffs go into effect? President Donald Trump has announced a 25% tariff on imported cars and key auto parts. Here's what it means for consumers and automakers. New car prices have reached record numbers in 2025. Average monthly car payments have also increased, but you can reduce payments using "20% rule". Auto loan interest can cost car buyers thousands of dollars depending on how a financing deal is structured. Buying an automobile is one of the biggest purchases many Americans will make in their lives. New car prices have hit record highs, creeping up to an average price of nearly $50,000 in 2025, according to Kelley Blue Book. If you're buying a new car in 2025, choosing the right financing strategy can make a huge impact on your ownership experience and monthly payments. What is the "20% rule," and how can you use it to your advantage when purchasing the car, truck, or SUV of your dreams? What is the 20% rule for car financing? Thousands of drivers will finance new cars in 2025. The way you structure your financing plan affects how much equity you have in your new vehicle as well as your monthly, annual, and total payments including interest. A minimum down payment of 20% can make financing deals less expensive in the long run for car buyers. The down payment "reduces the principal loan amount and the interest you're likely to pay" according to Chase Bank. Suppose you're financing a new 2025 Toyota RAV4. If you secure a 60-month (five-year) financing loan with an interest rate of 4.99%, your monthly payments could be as low as $440 a month with 20% down (before taxes, fees, and interest). A 20% down payment on the 2025 RAV4 ($29,2590 before taxes and fees) works out to $5,850. This leaves a principal amount of 80% of the SUV's MSRP ($23,400 plus taxes, fees, and interest). Your monthly payment is your principal loan amount divided by your loan term (60 months in the example above) plus the fluctuating monthly cost of interest on the principal (4.99% annually in the example above). Drivers can save thousands in interest payments by putting at least 20% of a car's total cost as a down payment due to the cost of interest over time. How to reduce interest costs on car loans If you want to save even more money on your car loan and are able to manage your monthly payments after a 20% down payment, there are methods to pay the full cost of your car's financing before the end of your loan term. That said, there could be costs associated with paying off your car loan early and it could negatively impact your credit score. If you pay your monthly loan amount and make additional payments on the principal, you can pay off your vehicle before the end of your loan term. This ensures that you will reduce the amount of total interest you pay through financing, but it can have unintended consequences depending on your lender. Ultimately, the best way to insure that you save money on interest when financing a vehicle is to make the largest down payment possible and gain more equity in your car. The "20% rule" is a strategy implemented to reduce the total cost of financing a vehicle, but you can tailor your financing agreement to your individual financial needs and goals. How much is the average car payment per month? The average auto loan payment was "$675 as of Q1 2025", according to consumer credit reporting company Experian. NerdWallet says the average annual percentage interest rate for new cars is 6.70% for individuals with a credit score between 661-780. Interest rates increase significantly for drivers with lower credit scores (13.22% for 501-600 score). Between rising new car prices and high interest rates, financing a new car is more expensive than ever before. Before purchasing a new car, truck or SUV, drivers should: Assess how much the new vehicle's true cost could be including taxes, fees, and interest Calculate the precise monthly auto loan payment and see if it fits within your budget Consider how a high-percentage down payment could reduce your total financing expenditure Brand-new cars may be fun to own and drive, but they are seldom needed, as used cars car provide sufficient value for more affordable prices. Thanks to depreciation, American drivers can find great deals on used car models that cost thousands less than new car models. So, if you're in the market for a new car in 2025, be sure to triple-check your numbers before making any financial commitment.
Yahoo
a day ago
- Automotive
- Yahoo
What's your state's average car loan balance?
Texas has the highest car loan balance of $7,920. While vehicle expenses vary across the country, drivers can still work to secure a competitive rate by improving their credit and comparing different lenders, Vehicle affordability is still a challenge for many drivers and has resulted in more auto loan delinquencies. Geographical location isn't a big factor influencing average car loan delinquency rates, interest rates and payments. Rather, they are determined by a driver's credit score and history, income, debts and the loan amount and term. But when you break those stats down by location, you get a peek at the economic conditions in each state. Over the past year, drivers have had to borrow more for their vehicles. These higher auto loan balances, combined with steep interest rates, have made vehicle ownership a challenge for many. As interest rates and loan balances increase, find out how your home state is doing. The average monthly payment for new cars is $745, according to first quarter data from Experian. The average monthly payment for used cars is $521, according to Experian. New cars cost an average of $48,799, according to Kelley Blue Book. The average loan term for new cars is 68.63 months, and rates sat at an average of 6.73 percent. (Experian) The average loan term for used cars is 67.22 months, and used cars had an average rate of 11.87 percent. (Experian) Drivers pay an average down payment of $4,078 for used vehicles, according to Edmunds. An auto loan balance is the remaining amount a driver has to pay on their loan. The amount that drivers are spending on their vehicles has been on an upward trend since 2020, according to the Federal Reserve, at $1.63 trillion nationally. The average car loan balance across the country is $5,680, according to the Federal Reserve. Below are the 10 states with the highest car loan balances in the country. State Average car loan balance Texas $7,920 Louisiana $6,890 New Mexico $6,780 North Dakota $6,630 Florida $6,560 Georgia $6,530 Mississippi $6,470 Arkansas $6,330 West Virginia $6,320 Oklahoma $6,270 While vehicle costs have been leveling out, they are still not at pre-pandemic levels, explains Satyan Merchant, senior vice president and automotive and mortgage business leader at TransUnion. Looking ahead New vehicle prices and used car prices are getting closer together as used car price averages increased to over $30,000 in the first quarter of 2025, according to Edmunds. Ideally, those purchasing in the coming year will be able to find better car prices, but new tariffs may mean prices continue to rise for both new and used vehicles. In addition, drivers have been choosing longer loan terms to lower the monthly cost of their car payments. Average used vehicle terms in the fourth quarter of 2024 reached 67.20 months. New vehicle terms told a similar story, with drivers financing for an average of 67.98 months. State Average used car APR Average monthly payment Hawaii 12.55% $729 Mississippi 12.89% $775 Louisiana 12.42% $806 Georgia 12.39% $808 New Mexico 12.86% $798 Nevada 11.95% $775 West Virginia 11.55% $743 Alaska 10.07% $861 Texas 11.78% $776 South Carolina 12.17% $782 Sources: iSeeCars and Edmunds The average monthly payment figures for each state were calculated using a combination of the average used car price, interest rate for each state and a 60-month loan term. However, we didn't factor in a down payment, which would reduce the monthly payment. Loan terms typically last between 24 and 84 months. A few lenders even offer 96-month terms. A longer term lowers the monthly cost, but it leads to a higher cost overall. The interest rate you pay for your vehicle depends on various factors, such as your credit, the vehicle type, and the terms you choose. According to fourth quarter 2024 data from Experian, drivers can expect to pay around 6.35 percent for new cars and 11.62 percent for used cars. State Average used car price Wyoming $41,405 Alaska $40,462 Montana $38,943 North Dakota $37,773 South Dakota $37,192 Idaho $37,092 Arkansas $36,343 Washington $36,119 Georgia $36,016 Louisiana $35,893 SUVs remain the most popular new vehicle type, totaling about 64 percent of financed vehicles in the first quarter of 2025, according to Experian. State Average delinquency rates Texas 7.92% Florida 6.54% Nevada 6.39% Arizona 6.23% California 5.42% Ohio 5.11% Pennsylvania 4.93% New Jersey 4.91% Illinois 4.81% Michigan 4.77% Source: New York Fed Consumer Credit Panel Texas has the highest average car loan balance and also the highest average delinquency at 7.92 percent. Florida has the second highest at 6.54 percent, notably more than a point lower than the Texas rate. When it comes to prioritizing your payment, the key is preparedness. To do this, you must only finance what you can afford. The best way to do this is to calculate your monthly payment and your loan's lifetime interest, then compare it with your budget. Learn more: Calculate your monthly car payment State Average auto loan balance Hawaii $4,090 Oregon $4,270 Massachusetts $4,290 New York $4,460 Connecticut $4,520 Source: New York Fed Consumer Credit Panel Hawaii takes the gold medal for lowest average auto loan balance, followed closely by Oregon. These states carry averages significantly lower than the national average of $5,680. But as explained, the auto loan balance is independent of ZIP code and rather relates to the economic circumstances of residents. Financial literacy, income and cost of living all play important roles. When looking at the states with the lowest balances, for example, three out of the five hold some of the highest median household incomes in the country, according to the Census Bureau. Average credit scores also tend to be higher in these states. Hawaii's average FICO score is 732, falling under the good category, according to Experian. That's higher than the national average credit score of 715. The remaining states carry similarly high averages. No matter what state you call home, you can still secure a competitive auto loan rate by working to improve your credit score and shopping around with several lenders. While there are factors outside your control, such as vehicle price tags and current rates, the better your credit score is, the better your rates will likely be. If you are struggling to find a monthly payment that you can afford, consider shopping for bad credit auto loans, which cater to those with little or no credit. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Miami Herald
a day ago
- Automotive
- Miami Herald
Car buyers, dealers are both shocked by latest price trends
Tariffs have been on car buyers' minds as they've headed to lots around the country. The threat of paying an import tax on our favorite Toyotas, Hyundais and Land Rovers has motivated buyers in a way the car industry hasn't seen in years. Auto dealers' customer traffic index rose to 37 from 33 in Q1 last year. Franchised dealers reported a 10-point increase in in-person visits, the largest increase since the metric was introduced in Q3 2022, according to Cox Automotive. Related: Popular Ford newcomer overtakes Jeep in a key area "People are buying cars because they think tariffs are coming," one Mazda dealer said. "The U.S. economy remains fundamentally strong, but the recent tariffs have had a swift and measurable impact on vehicle affordability," said Cox Automotive Chief Economist Jonathan Smoke. During the first part of the year, auto dealers offered incentives to get people through the doors, leading to new vehicle affordability improving to its best level in nearly four years in March. The average price of new vehicles decreased by 0.2% in the month, according to Kelley Blue Book. The average auto payment also fell by 0.2% to $739 per month, a 1.3% decline year over year, and the median weeks of income needed to purchase the average new vehicle fell to 36.7 weeks from a downwardly revised median of 36.9 weeks in February. But new data suggests that the good times are coming to an end. Pricing trends are going the wrong way for car buyers, according to new data from the Cox Automotive/Moody's Analytics Vehicle Affordability Index, After reaching the lowest affordability point of the year in April, the index "essentially flatlined"at that level in May. "The forces that typically drive improvement – like incentives and income growth – have been neutralized by stubbornly high interest rates and stagnant prices," Smoke said. "Without meaningful gains in wages and further easing of rates, we're likely to see affordability limit demand as we move into the summer months." Related: Ford CEO Jim Farley has a strong take on tariffs The estimated average auto loan rate rose by 9 basis points in May to 9.88%, but it was still lower year over year by 77 basis points. Income growth was also strong in the month at 3.4% year over year. The average payment increased 0.2% to $756, marking the highest monthly payment since December, despite a 1.1% decline year over year. The average monthly payment peaked at $795 in December 2022. The number of median weeks of income needed to purchase the average new vehicle held steady at 37.4 weeks. Last year, it took 39 weeks of median income to purchase the average new vehicle, even though prices were 1% lower because interest rates were higher. Due to the uncertainty surrounding President Donald Trump's trade war, dealers have increased incentives to combat consumer sentiment, which has been in the tank since Trump took office. Nearly half of American drivers cite car expenses as the reason they can't save any money, and the average American spends about 20% of their monthly income on auto loans, fuel, insurance, and maintenance. Most financial experts cap the monthly income you should spend on a vehicle at 15%. According to a MarketWatch Guides survey, about 10% of drivers say they spend 30% of their monthly income on driving, while another 12% said they "found themselves living paycheck to paycheck due to the financial strain of their cars." Related: Car buyers notice a disturbing trend at the car lot The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
