For those without substantial savings in high-yield accounts, securing a loan term length becomes a vital step in the purchase process.
The escalating average price of new cars, hovering just above $48,000 and poised to breach the $50,000 mark, is prompting potential buyers to consider loan term length options
Typically, a 10% down payment is advised to secure the best auto loan term length rates and prevent being upside down on the vehicle’s value due to rapid depreciation. For a $50,000 car, this implies a recommended down payment of approximately $5,000, leaving a balance of $45,000 for the loan term length. The resulting monthly payments hinge on the interest rate and loan term.
Displayed in the table below are various monthly payment amounts and total interest expenses for different loan rates and loan term lengths, based on the 2022 year-end average rate of 6.07%. While longer loan term lengths yield lower monthly payments, they concurrently elevate the overall interest cost over time.
Even with a favorable interest rate and extended loan term length, monthly payments for a $50,000 car remain notably high. As a guideline, it’s advisable to limit monthly car payments to 10% of take-home income or less.
A minimum monthly take-home income of $7,240 is recommended, assuming a below-average rate and an extended loan term
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