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Car payments now average well over $700 per month for new vehicles — a new record high — and experts say Americans could be looking at even steeper costs in the future.
The Federal Reserve refrained from raising interest rates in September, but car shoppers are continuing to deal with the consequences of the 11 rate hikes enacted since March 2022. Aimed at slowing inflation, the central bank's rate increases have also caused auto loan interest rates to skyrocket, impairing vehicle affordability.
The average auto loan interest rate for new vehicles was 7.4% in the third quarter (July through September). That's the highest level since 2007 and up from an average of 5.7% a year ago.
As a result, the average new car payment in the third quarter was $736 per month, which is $33 higher than the level a year ago when the average was $703, according to an Edmunds report released Tuesday.
Jessica Caldwell, head of insights at Edmunds, noted that benchmark interest rates are expected to remain high (and could even rise) before the end of the year. But interest rates are not the only reason to think car payments will continue to be extremely high in the months ahead.
“Spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” Caldwell said in the report. “Looking ahead, the ongoing UAW [United Auto Workers] strike could wipe out any inroads made on inventory and the return of incentives, further elevating pricing, at least among Detroit automakers.”
That's because if the UAW strike ends up lasting for many weeks and creating an inventory crunch, dealers and manufacturers may try to increase the prices on their dwindling supply of vehicles. For car shoppers, that means it could become harder to find discounts or financing incentives on American vehicles.
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Why cars are so expensive right now
The inventory of new vehicles has improved in the past year, which generally means buyers have more leverage to negotiate prices at the dealership. But when it comes to monthly payments, higher financing costs have hurt vehicle affordability even more.
The Fed hoped its interest rate hikes would cause car prices to come down; however, that effect has only really materialized in the used vehicle market. The average price of a new car was $48,451 in August, which is basically flat compared to a year ago, according to Kelley Blue Book.
While car prices are unchanged, you could have to pay thousands more in interest if you take out a new car loan now compared to a year ago.
The fact that interest rates will likely remain high into 2024 and mounting concerns about the auto workers strike are bad signs for consumers who intend to finance a new car purchase. On the other hand, if vehicle supply continues to improve, discounts and incentives could come back.
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What about used car prices?
Average used car payments have increased by just $2 in the past year, rising from $565 to $567, according to Edmunds.
Used car prices are down about 6% in the past year, according to Cox Automotive data, partially because high financing costs have reduced demand. Average used auto loan rates increased to 11.2% in the third quarter, up from 9% a year ago, according to Edmunds. The average car payment for a used vehicle is slightly higher than it was a year ago thanks to this increase in loan rates.
There are also ongoing inventory problems in the used vehicle market. Due to pandemic-era supply shortages, fewer new cars were produced and sold from 2020 to 2022. That means there’s very limited supply of 1- to 3-year-old used cars — 28% less than in 2019, according to a study from iSeeCars.com. If you want to buy one of these lightly used vehicles, expect to pay up.
The average price of a 3-year-old vehicle is $32,493, which is an increase from $23,048 in 2029, according to the study.
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FAQs
The average car payment for new vehicles hit a record high of $738 a month in the fourth quarter of 2023, according to an analysis from LendingTree. If that's too rich for your blood, there are plenty of better ways to spend that money and still get around.
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 average car payment in America right now? ›
Car payment statistics
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.
Is $500 a month a high car payment? ›
An affordable car payment would be one that doesn't exceed $600 a month, based on the rule of thumb that your car payment shouldn't be more than 15% of your take-home pay. If you take out a 60-month car loan at 8% APR, you should aim to take out a car loan of less than $30,000.
Is $1,000 a high car payment? ›
The cost of riding in luxury: Over $1,000 a month
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.
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.
Why did my car payment randomly go up? ›
If your auto loan payment amount increased, the reason may be Collateral Protection Insurance (CPI). CPI gets added to auto loans due to not receiving sufficient proof of insurance for the vehicle. When the insurance is added, the cost is applied to the loan balance, which will increase your monthly payment.
Is $750 a high car payment? ›
But no matter the reason for your $750 monthly car payment, the reality is that it's a lot of money. And if you're going from having no car payment to a payment of $750 a month, it could really constitute a shock to your finances. Here are a few steps you can take to cope with such a large car payment.
How much should I spend on a car if I make $100,000? ›
50% of Your Income Across All Vehicles
Similarly, if your family earns $100,000 per year total, the total value of all of your vehicles shouldn't be worth more than $50,000.
How much is a $20,000 car payment? ›
For instance, using our loan calculator, if you buy a $20,000 vehicle at 5% APR for 60 months the monthly payment would be $377.42 and you would pay $2,645.48 in interest.
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.
What is a good interest rate for a car for 72 months? ›
Auto Loan Purchase Interest Rates
| Payment Period | Purchase APR* "As Low As" | Payment per $1,000 |
|---|
| Up to 66 Months | 6.99% | $18.29 |
| Up to 72 Months | 7.24% | $17.16 |
| Up to 75 Months | 7.49% | $16.74 |
| Up to 78 Months | 7.74% | $16.36 |
4 more rowsIf you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.
What is the record high car payment? ›
The average car payment for new vehicles was a record-high $738 per month in the fourth quarter of 2023, a 2.5% increase from the fourth quarter of 2022. The average car payment for leased vehicles increased at a comparable 2.4%. However, the average car payment for used vehicles increased by just 0.4%.
What would a $30,000 car payment be? ›
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. In total, the loan will cost $34,787 with $4,787 in interest.
What is too high for a car loan? ›
Financial experts recommend spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs such as gas, insurance and maintenance as well as the payment. If that leaves you feeling you can afford only a beat-up jalopy, don't despair.
What is a normal monthly payment for a new car? ›
How much will my car payment be?
| Average | New cars | Used cars |
|---|
| Monthly car payment | $735 | $523 |
| Loan amount | $40,634 | $26,073 |
| Interest rate | 7.18% | 11.93% |
| Loan term | 67.62 months | 67.37 months |
May 31, 2024
Make a larger down payment
The larger your loan, the higher your monthly payment will be. You can reduce the amount you need to borrow by increasing your down payment. If you can't afford to make a large down payment, consider saving up before purchasing your next vehicle. Learn more about down payments on a car.
Will auto loan rates go down in 2024? ›
Auto loan rates for new and used vehicle purchases fell in the first quarter of 2024 to 6.73% and 11.91%, respectively, down slightly from the 15-year highs we saw at the end of 2023, according to Experian.
