1 Key Rule Humphrey Yang Wants You To Know Before Financing a Car
In a recent YouTube video, Humphrey Yang reveals one of the biggest mistakes car buyers make when it’s time to purchase a vehicle — sharing how much they can afford per month.
“The moment you reveal your number, you’ve lost the game and you’ve actually cost yourself upwards of thousands of dollars," Yang said.
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When a car salesperson hears your monthly budget, according to Yang, they often try to “rearrange every variable in the deal for their benefit — the price, the loan term, the interest rate, the add ons — they all can get shifted, so your payment looks the same at the end of the day, but on the back end, you’re actually paying a lot more.”
If the monthly payment does end up falling within your range, the dealer may try to steer you toward a higher-priced trim or dealer package or even raise the interest rate to get you closer to your upper monthly payment limit.
The average monthly car payment in 2025, according to Experian, was $748 for a new car and $532 for a used car. Interest rates for financing a vehicle will vary based on your credit score, the type of vehicle, the monthly payment amount and the lender. Current interest rates for a car loan are around 7%. If you buy a car for $30,000 and pay it off over a 60-month term, you’ll end up paying over $5,500 in interest.
With this in mind, if you do decide to finance a vehicle, there are certain things you can do to keep your payments within your budget and avoid costly upsells from the dealer.
Here’s How To Actually Finance a Car
The cost of the car is based on the vehicle price, the trade-in value of your current vehicle, the down payment and the monthly payment, and dealerships adjust these numbers as they negotiate.
While the numbers may change, it’s important to keep an eye on the vehicle's total price because Yang said, “The goal is always the same — to try to get you to think about the monthly payment.”
To avoid paying more than what you need to, Yang outlined five steps to go through before you actually go to a dealership.
1. Know Your Real Budget
Knowing your real budget means avoiding giving the salesperson a range and just sharing the number that you can actually pay. To determine this number, Yang recommends the 20-4-10 rule — 20% down payment, financed for four years or less, and the total car expenses are less than 10% of your gross monthly income.
2. Get Preapproval for Financing
Just like you can get preapproved for a home loan, you can also apply for a preapproval letter for financing a vehicle. Yang said you can leverage this information for a better deal from the dealership, and, often, banks have better interest rates than dealer financing. It also streamlines the actual car-buying process because you can skip all of the financing at the dealership.
3. Don’t Discuss Monthly Payments
Focusing on the total price of the vehicle will keep the conversation in check and won’t allow them to change the variables to fit a monthly payment. If the salesperson tries to steer the conversation toward what your monthly payment is or you feel like they’re using high-pressure sales strategies, you can tell them that you need some time to think about it.
4. Keep Loan Terms Short
Keep your car loan to a 60-month term. Dealers often try to get people into longer-term loans, but that ultimately means paying more interest.
“The longer the loan gets, the more interest you’re going to pay, and there’s a second problem, which is that on a longer loan you’re at risk of being ‘under water’ which means you own more on the car than it's worth," Yang said.
5. Say No to Add-Ons
When add-ons are lumped into the final purchase price — extended warranties, paint protection, wheel protection, fabric coating and gap insurance, for instance — it adds to the total cost of the vehicle. If the salesperson is trying to upsell any of these things, it’s best to just say no. Yang said that gap insurance is really the only add-on he would consider, but he also points out that you can get gap insurance from your car insurance company for a better rate than from the dealership.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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