Watch That Auto Loan Payment When Buying a New Car
The size of your monthly auto loan payment matters, mainly because it affects how much debt you have. Most importantly, mortgage lenders look at your debt-to-income ratio when you apply for a home loan.
What is a debt-to-income ratio?
This ratio measures how much of your gross monthly income is eaten up by certain recurring monthly payments.
When calculating your debt-to-income ratio, lenders look at all your debt. This will include your current or estimated new monthly mortgage payment, student loan payments, personal loan payments and minimum required credit card payments. Lenders will also look at the size of your monthly auto loan payment.
The lower your auto loan payment, the better it is for your debt-to-income ratio. It varies, but most lenders prefer a debt-to-income ratio of no more than 36% for borrowers applying for a mortgage.
Higher car loan payments
Unfortunately, a new study shows that U.S. consumers are spending more on cars, which has resulted in higher monthly auto loan payments.
According to the latest research from national credit bureau Experian, the average monthly auto loan payment in the United States stood at $675 in the first quarter of 2025, up from an average payment of $646 in 2024.
The average U.S. consumer with an auto loan had a balance of $24,408 on their loans as of the first quarter of 2025. That is up 1% from the average U.S. auto loan balance of $24,009 in 2024.
A higher auto loan payment will negatively impact your debt-to-income ratio. That's why it's so important to shop around for a new car and to compare offers from several auto loan lenders.
The lower your auto loan's interest rate, the lower its monthly payment will be, which will positively impact your debt-to-income ratio and make it easier to qualify for a mortgage. Additionally, keep in mind that the longer the term on your car loan, the lower the monthly payment.
Other monthly payments
Your debt-to-income ratio is affected by your other monthly payments. If you are stuck with a higher auto loan payment, consider tackling any credit card debt you might be carrying and pay it down or off.
Lenders will include the minimum monthly payments that come with your credit cards when figuring your debt-to-income ratio. It might be easier to pay down this debt and reduce your minimum monthly payments than it would be to pay off larger amounts of debt such as a car or student loan.
Maybe you have personal loans with lower balances. If you can afford it, consider paying off these loans. Removing that personal loan monthly payment will help improve your debt-to-income ratio too.
Mortgage payments are rising
Another challenge for borrowers is that monthly mortgage payments, fueled by an increase in housing prices and mortgage interest rates, are rising too.
Experian reported that the average monthly mortgage payment in the United States stood at $2,144 as of the first quarter of 2025. And that figure, which is up 6.6% from the $2,012 that U.S. homeowners paid on average each month in 2024, doesn't even include the money that borrowers spend on property taxes and homeowners insurance.
The message here? Do all that you can to keep your other loan and credit card payments low. It's the best way to earn a debt-to-income ratio that is low enough to qualify for a mortgage today.