For car buyers today, saving over a few years for a large down payment can be critical to reducing the amount they borrow and the length of their loan

In this high-cost environment, the most impactful step car shoppers can take is to look for cheaper cars - including used cars - and save a sizable down payment.

American consumers have been squeezed by years of rising car prices, with the average new car now selling for more than $50,000, and the average used car for $27,000.

Rising interest rates, which have increased to 6.35% for new-car loans from 4.09% in 2021, have only put more pressure on car buyers.

The Trump administration said the lowered fuel-efficiency standards it unveiled this week will reduce the average price of a new car by $1,300, mainly by cutting efficiency-related technology. Yet this is generally not enough to offset the impact of the administration's tariffs, which boosted the cost of imported vehicles by an estimated $5,000 to $8,900, and domestic vehicles by $1,600 to $2,000 earlier this year, according to Cox Automotive.

Those trends have made it harder for many households who haven't saved huge down payments to stay within recommended spending guidelines for their cars, an asset that depreciates rapidly and can hold back their ability to build wealth when the amount they owe on their vehicle becomes more than the car is worth.

"We recommend saving up for a larger down payment, as much as possible, for as long as possible."Joseph Yoon, consumer insights analyst at Edmunds

The average monthly payment on new cars has been more than $700 since 2022, and 20% of new-car loans now have a payment of $1,000 or more.

While traditional budgeting rules recommend spending less than 10% of gross income on all transportation expenses (which includes the monthly payment, gas, insurance and maintenance for all vehicles), households on average spent 12.8% in 2024.

Related: Classic budgeting rules don't work anymore - even if your household makes $100,000. Here's what does.

To keep car costs under control, financial planners Brian Preston and Bo Hanson, hosts of the Money Guy Show, developed a car-buying guideline recommending that people put down at least 20% on a car, pay off the loan in three years or less and spend less than 8% of their gross income on the car payment - a rule they call "20/3/8."

Remember: Gas, insurance and maintenance added to the the monthly payment should not exceed 10% of income.

Using Preston's and Hanson's 8% cap, here are the absolute upper limits on monthly payments for a three-year loan, by income level, to keep drivers from feeling car-poor. Buyers should aim to stay below these ceilings, rather than push up against them, to provide breathing room in their household's budget.

Staying under these caps depends on a buyer's down payment as well as their loan's interest rate, which is determined largely by their credit score. In general, it can be hard to stay below these limits with new cars these days.

In this high-cost environment, the most impactful thing car shoppers can do is look for cheaper cars - including used cars, which account for 70% of transactions, according to Edmunds - and save enough cash to put down far more than the 20% traditionally recommended by financial experts, which may take a few years. This reduces the loan size as well as the monthly payment.

"We recommend saving up for a larger down payment, as much as possible, for as long as possible," Joseph Yoon, consumer-insights analyst at Edmunds, told MarketWatch.

Yet the median down payment on a car dropped to 11.1% by early 2026 from 14.7% in early 2023, according to Edmunds, falling short of even the 20% recommendation.

For a $50,000 new car, a household earning the median income of $84,000 would need to put down at least 64% ($32,000) at the average 6.35% interest rate for three years to stay below the 8%-of-income limit suggested by Hanson and Preston. If they saved about $1,000 each month, it would take nearly three years to save up for this down payment.

If that sounds like too long of a project, the alternative likely involves buying a less-expensive vehicle. For a $27,000 used car, a household could put down 40% ($10,800, or nearly a year of saving $1,000 each month). Even at the average 11.19% interest rate for used-car buyers, their monthly payment for three years would be around $530.

More on this: Taking out a loan? First make these 5 smart moves to raise your credit score - whether you have weeks or months

In reality, rather than saving more for a down payment, car buyers have been taking out longer loans to reduce their monthly payment. One in four new-car loans is now 84 months, or seven years, according to Edmunds.

Even with these drawn-out loans, many households still have high monthly payments.

The average new-car buyer who financed in the second quarter borrowed $43,610 at 6.35% over 69.5 months, bringing their monthly payment to $765, according to the credit bureau Experian. That's already more than the recommended amount of transportation spending for a household earning the median income - without including gas, insurance and maintenance.

Five years ago, the average new car loan was $35,163 at 4.09% over 69.36 months, with a monthly payment of $575, nearly $200 less per month compared to today.

Used-car buyers who financed in the second quarter this year borrowed $27,852 on average at 11.19% over 67.9 months, bringing the monthly payment to $542.

"When you see loan terms extending to record lengths, down payments shrinking and monthly payments hitting all-time highs, you're looking at a clear recipe for long-term financial strain," Jessica Caldwell, Edmunds' head of insights, said in a statement.