Why More People Than Ever Are Paying Over $1000 a Month for New Cars (2024)

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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Why More People Than Ever Are Paying Over $1000 a Month for New Cars (2024)

FAQs

Why More People Than Ever Are Paying Over $1000 a Month for New Cars? ›

The share of vehicles coming with monthly payments of more than $1,000 has surged amid rising car prices during the pandemic and, more recently, rising interest rates. (To see a specific data point, tap or hover over that area of the chart.)

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 record share of Americans are paying $1000 or more on monthly car payments? ›

Recently, automotive data provider Edmunds published its quarterly vehicle finance statistics. 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.

Why is buying a car more expensive than ever in the US? ›

The cost of car ownership in the US surged after Covid shut down assembly lines and made vital semiconductors scarce. Then the Federal Reserve rapidly raised interest rates to combat high inflation, making car loans more pricey.

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 a normal 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.

Why do people have 1000 dollar car payments? ›

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.

Is it bad to pay for a car monthly? ›

Traditional auto-buying wisdom says to focus on a total price first rather than a monthly payment because a monthly payment can become problematic if the dealer learns your budget. For example, if you want to keep your new car payment to $400 per month, the dealer might easily get your payments within your budget.

What is too high of a monthly car payment? ›

Your monthly auto loan payments should not exceed 10 to 15 percent of your pre-tax take-home salary. Due to increased vehicle incentives, drivers may find relief when shopping for a vehicle this year. To secure the best deal, work to improve your credit score and consider making a sizeable down payment.

What percentage of borrowers have a car payment of $1000 or more? ›

The average monthly payment for a new vehicle hit a record $730 in the first quarter, up from $656 in 2022. And 16.8 percent, or about 1 in 6 of them, are paying $1,000 or more a month — also a new all-time high.

How many Americans are behind on their car payment? ›

The latest data from Fitch Ratings shows that 6.1% of subprime borrowers were at least 60 days past due on their car payments -- the highest percentage since 1994. Two factors are causing an increase in late car payments: the rapid rise of car prices over the past few years and high interest rates.

What percent of Americans pay cash for cars? ›

This is double the amount of loan debt 10 years ago, and it's only expected to increase in the future along with rising auto prices. While half of respondents financed, a significant portion of Americans (38%) purchased their most recent vehicle in cash.

How overpriced are cars right now? ›

But that's still 29% higher than the average pre-pandemic price of about $38,000 in February 2020. Used car prices averaged $31,556 in March, down from a peak of $32,889 in April 2022 but still 33% more than March 2020's $23,691.

In what 3 states are cars most expensive? ›

The Most Expensive States To Own A Car
RankStateTotal Score Out of 100
1California100.00
2Nevada80.63
3Florida (Tie)75.03
8 more rows
Mar 28, 2024

Are cars becoming unaffordable? ›

"Simply put, cars have become more expensive," Joseph Yoon, consumer insights analyst at car consumer guide Edmunds—an online resource for cars inventory and information—told Newsweek. "In November 2019, the average transaction price for a new vehicle was $38,500. In November of 2023, that figure jumped to $47,939."

How can I lower my payment on a new car? ›

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 car loan rates go down in 2024? ›

Auto loan rates are expected to stop rising and possibly start descending in 2024, but they'll likely remain elevated in comparison to recent years (alongside the broader interest rates environment).

Why do car dealers want a big down payment? ›

Without a down payment, the lender has more to lose if you don't repay the loan and they need to repossess and sell the car. Cars can begin losing value as soon as you drive off the lot.

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