Auto loan payments exceed $1,000 for more drivers

For many consumers, purchasing a car is increasingly a costly monthly expense.

The percentage of new car buyers paying more than $1,000 per month on a car loan rose to 20.3% of all new car purchases financed in the fourth quarter of 2025, a record high, according to new data from automotive website Edmunds.

This is up from 19.1% in Q3 2025 and 18.9% in Q4 2024.

Used car buyers are also not exempt, with 6.3% facing monthly auto loan payments of $1,000 or more as of the fourth quarter. This is up from 6.1% in Q3 2025 and 5.4% in Q4 2024.

Edmunds found that even car buyers who avoided four-figure monthly payments were still paying more. The average monthly payment for a new car hit a record high of $772 per month in the fourth quarter of 2025, up from $754 in the third quarter.

Ivan Drury, director of insights at Edmunds, said the data points to a K-shaped economy that has divided wealthy and low-income consumers.

Wealthy investors who benefit from rising stock and home prices are likely to spend, but lower-income consumers are being hit harder as long-term rising costs of living impact the prices of food and other necessities.

“It’s all well and good for the haves, but for the have-nots, it’s a struggle from one payment to the next,” Drury said.

As car prices rise, buyers are borrowing more money. The average loan amount for a new car rose to $43,759 in the fourth quarter, up from $42,647 in the third quarter of 2024 and $42,113 in the fourth quarter, according to Edmunds.

The average price paid for a new car exceeded $50,000 for the first time in September, Cox Automotive’s Kelley Blue Book reported in October.

Some consumers are responding to these higher costs by opting for longer loan terms that can reduce their monthly payments. According to Edmunds, loans with terms of 84 months or longer accounted for 20.8% of new car purchases in the final quarter of 2025, up from 17.9% in the fourth quarter of 2024 and down from 22% in the third quarter.

However, interest rates on auto loans remain historically high, contributing to higher auto loan payments. The average annual rate fell to 6.7% in the fourth quarter of 2024 from 7% in the third quarter and 6.8% in the fourth quarter, Edmunds said.

Only 3.1% of new car loans had an interest rate of 0%, down from 3.3% in the third quarter and up from 2.4% in the fourth quarter.

Drury said consumers would need to have good credit to participate in these deals if automakers are still offering 0% interest rates. The time horizon is often very short, limiting potential savings, he said.

“For many consumers, it’s easy to save money when you have the money,” Drury said. “If you don’t do that, it will be very difficult.”

In the last four months of 2025, the Federal Reserve initiated three rate cuts. Experts expect the pace of interest rate cuts to slow in 2026, but the Trump administration is pushing for significant interest rate cuts.

Lower interest rates benefit car buyers. More favorable borrowing terms could bring buyers back into the market, Drury said.

He said automakers may introduce more incentives in 2026 to boost sales. According to S&P Global, an estimated 16.3 million units were sold in 2025. This is expected to fall to 16 million people by 2026, Drury said. But automakers never want to see sales decline from year to year, he said.

A new auto loan interest deduction of up to $10,000 per year will be introduced for vehicles purchased between January 1, 2025 and December 31, 2028. But experts say consumers should read the fine print on the terms of the tax break to best understand whether it’s worth the cost.

Eligible vehicles must be new, used for personal use, and assembled in the United States.

The amount of the deduction also depends on the taxpayer’s modified adjusted gross income, according to an analysis by consulting and research firm Anderson Economic Group. Individuals with incomes above $149,000 or married couples with incomes above $249,000 are not eligible for the deduction.

Taxpayers who fall below these thresholds could save between $300 and $900 a year, or more than $1,000 a year if they borrow more, according to Anderson Economic Group. The analysis notes that borrowers are likely to receive the maximum deduction in the first year of the loan because interest payments are brought forward. Once the borrower pays off the loan, the annual deduction decreases.

When taking out a car loan, experts say it’s important to keep your monthly payments within your budget.

“If your goal is to make less than $1,000 in monthly car payments, you should either buy a less expensive car or save up to make a big down payment,” says Crystal Cox, a certified financial planner and senior vice president at Wealthspire Advisors in Madison, Wisconsin.

Data shows that people are keeping their cars longer before buying a new one. The average age of car trade-ins rose to 7.6 years in the first quarter of 2025, the oldest since 2019, Edmunds said.

Cox says waiting longer to buy a new car makes it easier to save money for a down payment or the full price of your next car.

She said it was something like this: After you pay off your car, keep driving it and put your last car loan payment into a high-yield savings account. This will help you avoid a deterioration in your lifestyle while also helping you save up for a down payment on your next car.

Cox said a long-term strategy of keeping a car longer, saving consistently and avoiding unnecessary upgrades could help car buyers pay less interest on big-ticket purchases.

One rule of thumb for determining the affordability of a car loan is to limit your total debt to 36% of your gross income, says Jake Martin, CFP at Keeler & Nadler Family Wealth in Dublin, Ohio.

You can figure out how much you can comfortably afford after deducting payments on other debts like your mortgage, credit cards, and student loans. More than 36% is still achievable, but it will impact the ability to spend on other essentials and discretionary purchases, he said.