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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.
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.
When automakers still offer 0% rates, consumers must have good credit to qualify for those deals, Drury said. The term lengths are often very short, which limits the potential savings, he said.
“For a lot of consumers, if you have money, it’s easy to save money,” Drury said. “If you don’t, it’s very difficult.”
How 2026 changes may affect 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. However, experts say consumers should read the fine print on the terms of that tax break to best understand whether it may help defray their costs.
Qualifying vehicles must be new, used for personal use and assembled in the United States.
The deduction will also depend on a taxpayer’s modified adjusted gross income, according to an analysis by consulting and research firm Anderson Economic Group. Individuals with more than $149,000 in income, or married couples with more than $249,000, will not receive the deduction.
Taxpayers below those thresholds may stand to save $300 to $900 per year on their tax bills, or more than $1,000 annually if they borrow more, according to Anderson Economic Group. Borrowers are likely to see the biggest deductions in the first year of their loans, since interest payments are front-loaded, the analysis notes. As borrowers pay off their loans, the annual deductions will be smaller.
How to break the cycle of high car payments
If you do take on a car loan, it’s important 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.
Here’s what that could look like, she said: After paying off a car, keep driving that car and bank your previous auto loan payment in a high-yield savings account. That helps avoid lifestyle creep while also building a down payment for your next car purchase.
A long-term strategy of keeping cars longer, saving consistently and avoiding unnecessary upgrades can help car buyers limit interest on those big-ticket purchases, 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. While exceeding 36% is still feasible, that will affect your ability to spend on other necessities and discretionary purchases, he said.