Average New-Car Payment Hits Record $787 as 7-Year Loans Surge

American car buyers are facing the most expensive financing market on record. The average monthly payment on a financed new vehicle climbed to $787 in the third quarter, up from $777 in the previous quarter and $756 a year earlier, according to Edmunds. The average amount financed also reached a record $44,664, while the average new vehicle sold for $50,562 in September, just $52 below the all-time high, according to Kelley Blue Book.

The combination of near-record vehicle prices and stubbornly elevated interest rates has created what Edmunds consumer insights analyst Joseph Yoon calls a brutally simple math problem. The average annual percentage rate on new-car loans held at 7% in the third quarter, unchanged from both the prior quarter and a year earlier. «Mix those things together and then you get record-high monthly payments,» Yoon said. «Just how the math works out.»

To cope with higher prices, buyers are stretching their loans further than ever. In the third quarter, 25.5% of financed new-car purchases carried terms of 84 months or more, up from 23.9% in the prior quarter and 21.8% a year earlier. Even so, a record 21.2% of buyers committed to monthly payments of $1,000 or more. The average interest paid over the life of a new-car loan reached a record $9,938, up from $9,442 a year earlier, a rise Edmunds attributed to larger amounts financed over longer periods rather than higher rates.

Longer terms carry consequences that are not always immediately obvious. «The longer you have a loan term, technically the longer you're paying just toward interest, not toward the principal of the loan, especially when the interest rates are so high,» Yoon said. Helen Colby, an assistant teaching professor at Carnegie Mellon University's Tepper School of Business, noted that the true cost can go well beyond interest. «For borrowers who already have tight budgets, getting such a long loan means committing themselves to five, six, or even seven years of increased spending that will reduce their budget for other things like vacations, savings, or even necessities like food and clothing,» she said.

The road to record payments began during the pandemic, when factory shutdowns and parts shortages forced automakers to choose between building fewer vehicles or focusing on higher-margin models. They chose the latter, and new-vehicle prices are now about 30% higher than six years ago. Nationwide, auto loan balances reached $1.71 trillion in the second quarter, roughly 56% more than a decade earlier, according to the New York Fed.

Despite the affordability squeeze, there is little sign that buyers are reaching a breaking point. «We keep thinking that there might be some type of tipping point. Are sales going to crater? And we haven't seen anything like that. Sales are fine,» Yoon said. Edmunds' head of insights, Jessica Caldwell, called the latest data «a remarkable display of consumer resilience.» The dynamic reflects what economists call the K-shaped economy: the share of new-car buyers earning less than $100,000 fell to 37% last year from 50% in 2020, according to Cox Automotive, meaning households with six-figure incomes are driving the market while others are priced out.

For those at the lower end, the crunch is real. Abbey Burbach, 35, works three jobs totaling 50 to 60 hours a week but says she cannot afford a new car. «You're lucky to find a new car for under $400 a month anymore,» she said. Burbach added that many of her peers who drive newer models inherited them from relatives, and the average age of a new-car buyer has been rising as younger people struggle to enter the market.

The used-car market, once a reliable fallback, now offers limited relief. When new-car inventory dried up during the pandemic, buyers flooded the used market and prices surged. The average used-vehicle transaction price rose from $20,942 in the second quarter of 2020 to $27,306 by the third quarter of 2021, according to Edmunds. With rates expected to hold steady through the end of the year, Yoon sees no imminent relief for buyers. «Especially towards the end of the year, I don't think anything's going to change,» he said.

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Caroline Mercer

World News Correspondent

Caroline Mercer covers public affairs, politics, business, culture and daily news for Core Memo. The role focuses on verification, context, and clear explanations for readers.

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