What is your Actual Car Payment?
Average Car Payment or Effective Car Payments are probably not terms you’ll hear much about from car dealers, financial managers, banks sales reps and financing experts. And, except for here on CarLeaseTips.com, you are not likely to find average car payment listed among any of the jargon and terms inside online car leasing guides. Yet ironically, this is the single most important consideration in leasing a car. Understanding the real payment in terms of what it actually means goes beyond the actual car payments which are advertised by car makers, dealers and in newspaper advertisements. Understanding what it really means, gives you a much better sense of what you are paying to lease or buy a car. So, what is your average or effective monthly payment and how do you calculate it? Your car loan might be $250.00 a month for a $30,000 car, but if you made a $4,000 down payment (or capitalized cost reduction), how much are you really paying for the car? Just because your money is no longer figured into the loan doesn’t mean it’s not costing you or affecting your monthly budget. There is a much more honest way to calculate a monthly car payment. Let’s see what your actual monthly car payment means in real terms of what it does to your wallet and monthly budget.
How Do You Calculate Your Average Car Payment?
Your average car payment is based on very simple math. It tells us how much our monthly payment average is. That is, when we consider the down payments and/or any extra fees required to lease the car. To calculate this, we will need to know the total cost of our lease. The total cost of our lease is determined by adding any down payments and additional fees. You add these to the total cost of our monthly lease payments. The total cost is a much honest take assessment of what the car is really costing us. But, we can take it a step further: We can average it out over the months we’re making payments on the car.
Total Lease Cost =
- ((Monthly Payments x Lease Months)+(Down Payment + Extra Fees))
The result is the total cost divided by the number of months in the lease term.
Average Car Lease Payment =
The Most Important Figure in Car Leasing
So, can you see why—the average car payment—is such an important figure? Would if I leased a 2011 Honda Accord EX for $300 a month on a 36 month lease. And, I had to put $2,000 down to do it? Well, that means my average monthly cost is $355.55 ($300 x 36) + $2,000) / 36). That’s $55.00 a month higher than the advertised payment of $300. While Down payments or capitalized cost reductions do lower our monthly payment. However, they generally don’t reduce our total cost of leasing the vehicle. Those down payments underneath the fine print of lease deals are subtle. But, they are effective marketing ploys to make us feel as though our monthly cost is lower than it really is. Whether we are buying or leasing cars, it is important not to be influenced by the marketing psychology. That means ignore the advertised low monthly car payments. Some car manufacturers like Honda have recognized that some consumers don’t like the idea of paying money up front on a car lease. So, they have adjusted their car lease specials accordingly. Look for No-Money-Down-Car-Lease-Specials.
Can You Negotiate Your Average Monthly Payment?
Negotiating your monthly payment is as simple as refusing to pay any down payments, cap cost reductions or extra fees. Bring your calculator, do the simple math. Know your facts. However, another reason it is important to know your average monthly payment is so you can compare. Look at the loan payment actually being offered. Now, you can determine if it really saves you money. Putting money down on the lease in the first place most likely isn’t saving you a dime.
With car leasing, it is highly unlikely that a down payment will significantly reduce the total cost of the loan. As an example, let’s say that a $4,000 down payment on a $30,000 car lease reduces your monthly payment by $100.00 a month. Over a 36-month term, that means you’ll make $3,600 less in monthly loan payments. In other words, you had to pay $4,000 down to save $3,600. In reality, the scenario might play out a little bit differently than in this example, but it illustrates how down payments can work in the favor of the dealer or negotiator of the lease deal.
Know What Your Monthly Payment Really is
It doesn’t have to be this way, once you understand how and why down payments are used by the dealer. Knowing they they are unnecessary, you can begin to use them to your own advantage as a negotiating tool. Play along with the dealer. When he tells you that $30,000 car is $250.00 a month explain to him how your average car payment is really $350.00 a month. You are not interested in putting any money down on a lease, but the $350.00 payment is too high. Your budget on that $30,000 car is $300.00 monthly. In reality, it rarely pays off to put any additional money down on a car lease in order to reduce your monthly payment. Look at your average car payment – and you’ll do much better at the negotiating table. Also, it pays to visit informative websites such as RealCarTips.com and Cars.com.
What is the Average National Car Payment
According to the Wiki Answers website, the average payment in the United States is between $380 – $460 per month. Wow – you can lease a really nice, luxury car; BMW, Infiniti, Acura, Cadillac etc., for that kind of money. Unfortunately, a $380 car payment doesn’t get you much in a auto-loan purchase situation. Let’s assume you acquire a great deal on a 60-Month, 3.9% interest rate and put nothing down (usually not possible with a purchase) Even under those best circumstances, you’re looking at $21,000 car. Hello Civic, Corolla, Elantra, etc.
And sadly, the national average car payment range does not take into account the down payment used to acquire that $380 – $460 monthly payment. But, most people are putting anywhere between $500 – $4,000, or more when purchasing a car on loan. The real, national U.S car payment when down payments are figured in to that number is probably closer to $500 – $650. Whether you lease or buy your next car, realize that there is more than one way to calculate and understand your actual payment and compare it to the national average.
Even Old Cars come with an Average Car Payment
Many so-called financing experts don’t take into account the net cost of owning an old car. Celebrities such as Dave Ramsey are continually emphasizing how important it is to own your car outright. This type of short-sighted thinking completely neglects the fact that old cars are liabilities. You had better have AAA if you are going to drive an old car because it is not a question of if it will break down, but when.
New Cars Offer Security and Peace of Mind
New cars are not only more reliable, but offer a degree of piece of mind, comfort, safety, and security that is simply not possible driving used cars. Dave Ramsey likes to preach to us that you can Live without Car Payments, but he fails to tell us that there is always an average car payment. Driving an old car just means you are paying the bills to someone else besides a bank, mainly an expensive repair shop. If you’ve ever replaced a timing belt, alternator, radiator, valve covers, etc., then you know how expensive it can be to continue driving an old car. It always gets back to average car payment. What are you really paying a month for your car? When you consider the safety, security, comfort and financial certainty behind a new automobile it makes more sense then ever to lease new cars every 3-4 years.
Paying Cash for a Car still has an Average Car Loan Payment
When you pay cash for a car, you will be putting money back into your savings account to recoup your investment. It is important to realize that paying cash for a car has just much of a lost opportunity investment cost as having a monthly car lease payment. Some finance ‘experts’ pick-on the fact you are paying interest when you lease a car. The interest or money factor are often very low on leased cars because of dealer incentives. The fact is there is always an interest cost because it means recouping lost investment in your money market or savings.
Other Types of Monthly Car Payments
The full cost of leasing a car is more than just an average payment. There are other payments to average-in to your net cost: Average car insurance payment, average gas payment per month, and average car repair and maintenance bills. These things apply to buying new and used cars too. All factors must be considered whether you are buying or leasing a car.
Average Car Payment Calculator
Use the free Car Lease Calculator. When you enter your monthly payment term, and capitalized cost reduction or down payment, the free and convenient auto loan calculator will automatically figure-in your average monthly payment. There are two types of free car lease evaluators:
- Basic Car Lease Evaluator – Just enter MSRP, Monthly Payment, Down Payment and Term.
- Advanced Car Lease Evaluator – Enter MSRP, Sales Price, Trade-In Value, Down Payment, Residual Value, Money Factor, and Terms