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What is a reasonable car payment?

by | Oct 24, 2023 | Bankruptcy, Chapter 13, Chapter 7

Even before recent double digit inflation and doubling of interest rates, we were starting to see seven-year car loans being the norm. For years, a reasonable car payment was $4-500, but now the average is $725.

This article posits that there is a 20/4/7 rule, which is that you should plan to put 20% down, have your payments go no longer than four years, and the payment should not be more than 7% of your gross monthly income, or 15% of take-home pay.

Cars are never a good investment. It’s important to have an equity buffer in case you suffer a downturn, or are ready to change vehicles. The higher the interest, the slower the principal will get paid down, and the greater the chances are that the vehicle will get upside down. In a Chapter 7 bankruptcy, we can take care of any vehicle loan deficiencies. In a chapter 13, we can usually restructure car loans, and lower interest rates and payments, when it is feasible to do so.