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.
What percentage of people pay $1000 for a car? ›
It isn't great news. A record 17.5% of buyers purchasing a new car in the third quarter are paying more than $1,000 a month for their vehicle. Three years ago, a $1,000 car payment was rare.
What percent of borrowers have a car payment of $1,000 or more? ›
The percentage of buyers who have a monthly car payment of over $1,000 has gone up to 17.5% in the third quarter of 2023. The survey results and data confirm that Americans are spending a record amount of money on monthly car payments.
Why are new car payments so high? ›
According to Foster, rising interest rates make it more expensive to borrow money. And that, combined with high costs, has been like a one-two punch to Americans' finances. She explains that this has left many drivers “resigned to finance an exceptionally expensive big-ticket purchase at an uncomfortably high rate.”
What is the record share of Americans are paying $1000 or more on monthly car payments? ›
More People Than Ever Before Are Paying Over $1000 Monthly for New Cars. The share of new car owners spending $1,000 or more on monthly payments hit a new record. According to the automotive website Edmunds, the share increased to 17.9% in Q4 2023, up from 17.5% in Q3 and 15.7% in Q4 2022.
Is a $1,000 car payment normal? ›
For large luxury models, $1,000-plus payments are the norm. 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.
How much is the average person's car payment? ›
Car payment statistics
The average monthly car payment for new cars is $738. The average monthly car payment for used cars is $532. 42.30 percent of vehicles financed in the fourth quarter of 2023 were new vehicles. 57.70 percent of vehicles financed in the fourth quarter of 2023 were used vehicles.
How much is too much a month for car payment? ›
Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.
What is considered a high car payment? ›
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. Make sure your car payment does not exceed 15%-20% of your total income.
What is a good monthly payment for a car? ›
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%. You can use a car loan calculator to calculate a monthly payment within your budget.
Car dealerships know from experience that banks and other lenders are more willing to finance vehicle sales and leases in which the buyer (or lessee) has made a significant down payment.
What is a good interest rate for a car for 72 months? ›
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.
Will auto rates drop in 2024? ›
Lower Auto Loan Rates Could Make 2024 a Good Time To Buy or Refinance. While market predictions are bullish on the funds rate — and by extension, auto loan rates — finally coming back down in 2024, it's still not a guarantee. Powell and others at the Fed remain committed to their target of 2% inflation.
How many Americans are behind on their car payment? ›
In September, the percentage of auto borrowers who were at least 60 days late on their bills rose to 6.11%, according to a Fitch Ratings report obtained by FOX Business.
What percentage of Americans make car payments? ›
Around 31% of American adults say they're relying on an auto loan to pay for a car in 2022, with a further 14% saying they plan on getting an auto loan in the first half of 2023, according to Finder's Consumer Confidence Index, quarterly survey of consumer attitudes on wealth, debt, savings and more.
What percent of Americans pay cash for cars? ›
A CDK Global survey asked 1,000 new-car buyers how they finance their purchases. Including all age groups, 29% say they paid cash as opposed to taking out a car loan with monthly payments.
What percentage of people pay cash for a car? ›
A CDK Global survey asked 1,000 new-car buyers how they finance their purchases. Including all age groups, 29% say they paid cash as opposed to taking out a car loan with monthly payments.
What is the average price a person pays for a car? ›
At the end of 2022, the average new car cost over $49,500, and the average used car topped $26,500 as of early 2023. It is generally recommended that you cap transportation expenses at 10% of your monthly income.
How much does the average person spend on owning a car? ›
Owning a car can get expensive, and the numbers don't lie. Owning a car costs an average of $10,728 per year or $894 per month. The cost of owning and maintaining increased by 10% from 2021 and crossed the 10K mark in 2022. The costs of owning a car go beyond the purchase price.
What percentage of people have a car payment? ›
Around 31% of American adults say they're relying on an auto loan to pay for a car in 2022, with a further 14% saying they plan on getting an auto loan in the first half of 2023, according to Finder's Consumer Confidence Index, quarterly survey of consumer attitudes on wealth, debt, savings and more.
