What Factors Affect my Monthly Car Payment?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 12 October 2018
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A monthly car payment can vary in size, depending on the amount of principal owed on the loan, the interest rate, and the term of the loan. A small principal with low interest spread out over five years can result in a fairly low monthly car payment, for instance. When people prepare to buy a car and know they will need to finance the purchase, they can use a loan calculator to get an idea of the best loan for their needs, weighing their monthly budgets and how much they want to spend on a car.

The less money taken out, the smaller the monthly payment, as a general rule. People who only need to borrow a small portion of a car's total sale price can arrange to put down a large down payment, and may receive very favorable loan terms from a lender. Another issue is the length of time allotted for repayment. A three-year loan will have larger payments than a five-year loan, but it is important to be aware that people will pay more overall during the life of a five-year loan, because they will carry more principal and come out with higher interest charges.


Interest rate is another key factor with a monthly car payment. High interest results in higher monthly payments, as well as paying more over the life of the loan. People may want to look into incentives to reduce interest, such as receiving a discount for setting up automatic payments, or lower interest with a bigger down payment. These can result in substantial savings over the life of a loan; even a quarter of a percent adds up over time.

Late payments can have an impact on a monthly car payment as well. Lenders may reserve the right to increase interest and fine people for late payments. If people must miss a payment for some reason, it is a good idea to contact the lender ahead of time, or as soon as possible. Many lenders, especially credit unions and local banks, may be willing to waive penalties on a single late payment when they receive advance warning and a person has an important reason for needing to pay late, like having unexpected medical expenses.

When researching car purchases, people will often encounter sales tactics where the sales person provides them with an estimate for a monthly car payment and does not discuss the terms of the loan or the actual price of the car. People have a right to ask for more information and can choose to go home and research to see if they can get a better loan through another source, or to see if the terms of the loan are fair.



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