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For many consumers, buying a car increasingly comes with a hefty monthly bill. The share of new-car buyers who pay $1,000 or more per month for their auto loans rose to a record 20.3% of all new vehicle purchases financed in the fourth quarter of 2025, according to new data from car website Edmunds.
That’s up from 19.1% in the third quarter of 2025 and 18.9% in the fourth quarter of 2024. Used-car buyers aren’t exempt, either, with 6.3% facing monthly auto loan payments of $1,000-plus as of the fourth quarter. That’s up from 6.1% in the third quarter of 2025 and 5.4% in the fourth quarter of 2024.
Understanding the Rise in Car Loan Payments
Even car purchasers who avoid four-figure monthly payments are paying more, Edmunds found. The average monthly payment on a new vehicle climbed to an all-time high of $772 per month in the fourth quarter of 2025, up from $754 in the third quarter. The data points to a K-shaped economy that has divided wealthy and lower-income consumers, according to Ivan Drury, director of insights at Edmunds.
Wealthy investors, who have benefited from rising stock values and home prices, are more likely to spend, while low-income consumers have been harder hit by prolonged cost-of-living increases affecting the prices for groceries and other essentials. “For the haves, things are perfectly fine; for the have-nots, it’s a struggle from one payment to the next,” Drury said.
As Car Prices Rise, Borrowers Opt for Longer Loan Terms
As cars get more expensive, buyers have been borrowing larger amounts. The average amount financed for a new vehicle rose to $43,759 in the fourth quarter, up from $42,647 in the third quarter and $42,113 for the fourth quarter of 2024, according to Edmunds. The average price paid for a new vehicle topped $50,000 for the first time in September, Cox Automotive’s Kelley Blue Book reported in October.
Some consumers have reacted to those higher costs by opting for longer loan terms, which can reduce monthly payments. In the last quarter of 2025, loans of 84 months or longer made up 20.8% of new-car purchases, up from 17.9% in the fourth quarter of 2024 and down from 22% in the third quarter, according to Edmunds.
Interest rates on auto loans are still historically high, though, which contributes to higher auto loan payments. The average annual percentage rate dropped to 6.7% in the fourth quarter, down from 7% in the third quarter and 6.8% in the fourth quarter of 2024, according to Edmunds. Just 3.1% of loans for new vehicles had a 0% rate, down from 3.3% in the third quarter and up from 2.4% in the fourth quarter.
2026 Changes and Their Impact on Car Costs
In the last four months of 2025, the Federal Reserve initiated three interest rate cuts. Though experts expect the pace of reductions to slow in 2026, the Trump administration has been pushing for sharply lower interest rates. Falling rates will benefit auto shoppers. More favorable borrowing terms may help bring buyers back to the market, Drury said.
Automakers may put more incentives in place in 2026 to help encourage sales, he said. In 2025, an estimated 16.3 million units were sold, according to S&P Global. That is projected to decline to 16 million in 2026, Drury said. However, automakers never want sales to decrease from one year to the next, he said. A new auto loan interest deduction of up to $10,000 per year is in place for vehicles purchased between Jan. 1, 2025, and Dec. 31, 2028.
Breaking the Cycle of High Car Payments
If you do take on a car loan, it’s essential to keep monthly payments within a reasonable range for your budget, experts say. “If your goal is to not have a $1,000 monthly payment on a car, then you’ve got to either buy a less expensive car, or save and have a nice down payment toward a vehicle,” said Crystal Cox, a certified financial planner and senior vice president at Wealthspire Advisors in Madison, Wisconsin.
Data suggests that people are holding on to their cars longer before making a new vehicle purchase. The average age of vehicle trade-ins rose to 7.6 years in the first quarter of 2025, the oldest since 2019, according to Edmunds. Stretching the time between new car purchases can make it easier to accumulate savings that can go either toward a down payment or even fully paying for your next car, Cox said.
To help gauge the affordability of an auto loan, one rule of thumb is to limit your total debt to 36% of your gross income, said Jake Martin, a CFP at Keeler & Nadler Family Wealth in Dublin, Ohio. After subtracting payments for other debts, like mortgage, credit cards, and student loans, the remaining portion can give you an idea of how much you may comfortably be able to pay.
Learn more about the rising car loan payments and their implications Here
Smart Tip for Readers
When considering a car purchase, factor in not just the monthly payment but also the total cost of ownership, including insurance, maintenance, and fuel, to ensure the vehicle fits within your overall budget and financial goals.
