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.
