Average Car Payments Hit a Record High. Here’s What to Know.

Here are some questions and answers about car prices:

How can I get the best interest rate on a car?

Maintaining good credit is important so you can qualify for the lowest interest rate possible, Mr. Smoke said. Some dealers may still offer zero percent financing on new cars, but you’ll typically need a credit score of 760 or higher to qualify, he said. You can get a free credit report at annualcreditreport.com.

Compare loan rates among lenders and get prequalified before car shopping, Mr. Preston of Consumer Reports said, so you can check the rate you secured against the one offered by the dealer.

Can I lower my monthly car payment by taking out a longer-term loan?

Yes, and many consumers are doing that, Edmunds says. More than a third of shoppers who financed a new car in June chose a loan of 73 to 84 months — or about six to seven years. But longer loans typically have higher interest rates, so you’ll pay more over time even though payments are more manageable. And with longer loans, there’s more risk of becoming “upside down,” meaning the car will be worth less than the loan balance. In other words, you could owe money if you have to sell the car before the debt is paid.

What should I do if I’m having trouble making my car payments?

Delinquency rates on consumer debt, including car loans, remain low but increased “modestly” in the first quarter of the year, according to the Federal Reserve Bank of New York. If you are struggling to make payments, contact your lender to discuss options, said Kristen Holt, chief executive of GreenPath Financial Wellness, a nonprofit credit counseling agency that has its headquarters in Detroit: “It’s better to speak to the lender instead of just missing a payment.”

If the problem is short term, you may be able to defer payments while you stabilize your finances. With car values high, you could probably sell your car and pay off the debt, then shop for a more affordable model — if you can find one. For most Americans, commuting to work without a car is difficult, unless you work from home or live near a city with good public transportation. If the rate on your loan is high, you can try refinancing. Ms. Holt said some credit unions offered lower-interest programs.

Article source: https://www.nytimes.com/2022/07/15/your-money/monthly-car-payments-interest.html