Key Takeaways
- Soaring interest rates have pushed monthly payments for financed new cars to an all-time high, according to Edmunds.
- The share of borrowers with payments over $1,000 jumped to 17.5%, the highest since at least 2019, and four times as many as before the pandemic.
- A trend towards larger, fancier trucks and SUVs has also fueled the rise of mega car payments.
A record number of people are paying $1,000 or more for their monthly auto loan payments, and it’s not just because of high prices.
The percentage of buyers who financed their vehicles with a monthly payment of $1,000 or more rose to 17.5% in the third quarter, up from 17.1% in the second quarter, auto market data company Edmunds said this week. That’s more than quadruple the percentage before the pandemic, and the highest since at least 2019, as the chart below shows.
Prices for new and used vehicles surged during the pandemic when high demand for cars ran headlong into manufacturing shortfalls due to computer chip shortages. More recently, rising interest rates—a result of the Federal Reserve’s campaign of anti-inflation rate hikes—have driven auto loan rates to their highest in decades. Car buyers last quarter paid an average interest rate of 7.4% for new vehicles and 11.2% for used, both the highest since 2007, according to Edmunds.
The average monthly payment for a new car rose to $736 from $733 in the second quarter despite the average amount borrowed for a new car falling $207 to $40,149 over the same time period, showing the impact of higher rates.
“Spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” Jessica Caldwell, Edmunds' head of insights, said in a press release accompanying the data. “And while the Federal Reserve held off on raising the federal funds rate in their most recent session, the expectation is rates will remain high or even increase slightly through the end of the year, which may help tame inflation in the long run but is inflating monthly payments for now."
As of the second quarter, 64.5% of buyers with payments over a grand had longer-term loans between 67 and 84 months, meaning they’re paying thousands in interest over the life of their car loans. A smaller, savvy group—some 15.6%—had shorter-term loans of 31-48 months, minimizing their total interest payments at the cost of having a higher monthly payment in the short run, Edmunds said.
There’s also been a trend among auto manufacturers towards bigger, more expensive trucks and SUVs, with U.S. automakers having all but abandoned the small car market. Payments over $1,000 are now the norm for large luxury vehicles, according to Edmunds.
Even a handful of buyers with subcompact cars have four-figure payments, likely due to having shorter loan terms, poor credit, and still owing money on previous car loans, according to Edmunds analysts.
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FAQs
Soaring interest rates have pushed monthly payments for financed new cars to an all-time high, according to Edmunds. The share of borrowers with payments over $1,000 jumped to 17.5%, the highest since at least 2019, and four times as many as before the pandemic.
Is $1000 a month a high car payment? ›
Shockingly, almost 18 percent of new-vehicle borrowers had monthly payments of over $1,000 in the fourth quarter of 2024, according to Edmunds. If you are trying to avoid monthly payments in the thousands and want a better grasp on your finances this year, consider how your auto loan payment fits into your budget.
How many people have car payments over $1000? ›
Nearly 18% of auto loans require monthly payments of more than $1,000. Many of those have long life spans. Nearly 65% of auto loans with monthly payments over $1,000 have terms between 67 and 84 months.
Why are new car payments so high? ›
The Fed has raised interest rates to cool the economy.
This means that you're spending more money on your monthly loan payments, since you're paying more in interest. With many of these auto loans starting at 6%, it's no secret as to why car payments are up.
Is $1000 a month too much for a car? ›
But according to Edmunds, there's another reason why $1,000 monthly payments are becoming more common: Some buyers are taking out loans with shorter-than-normal financing terms to score a better financing deal, which means higher monthly payments. Endurance offers extended protection for your vehicle.
What is the average monthly payment for a $30000 car? ›
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483.
What is a realistic monthly car payment? ›
The average monthly car payment for new cars is $735. ( Experian) The average monthly car payment for used cars is $523. ( Experian)
Are Americans behind on car payments? ›
A growing percentage of Americans are falling behind on their car payments, squeezed by rising auto loan interest rates, stubborn inflation and the end to federal pandemic aid.
What is the average monthly payment for a new car? ›
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.
What is considered a lot for a car payment? ›
According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
According to experts, a car payment is too high if the car payment is more than 30% of your total income. Remember, the car payment isn't your only car expense! Make sure to consider fuel and maintenance expenses.
Why do car dealerships like down payments? ›
Lenders often want you to make a down payment to show your commitment to paying back the loan and to get some compensation for the car upfront.
What is a good interest rate for a car for 72 months? ›
What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
Can I afford a car making $1,000 a month? ›
There's no perfect formula for how much you can afford, but our short answer is that your new-car payment should be no more than 15% of your monthly take-home pay. If you're leasing or buying used, it should be no more than 10%.
What should my max monthly car payment be? ›
In general, it's recommended to spend no more than 10% to 15% of your monthly take-home income on your car payment, and no more than 20% on your total vehicle expenses, including insurance and registration. Read on to learn how you can determine how much car you can afford based on your financial situation.
How much is a $100,000 car payment per month? ›
Buying a $100K car on a 60 month loan will cost you $2500 or so per month after you factor in sales tax, interest, registration fees, insurance, maintenance, etc.
