Simply put, Americans are going into a lot of debt for their cars. Loan periods are not only longer, but prices are higher, according to the Detroit Free Press. Now, one in five Americans has an auto payment north of $1,000. 19.3 percent of Americans hand over the figure every month for their auto loans, and the figures are an increase from the second quarter of 2024, where around 17.3 percent of Americans did the same. Prices are rising, and as a result, we’re putting up more and more money for longer periods of time just to afford the same cars. Simply put, it’s an equation that can’t work for much longer.
Americans Hand Over Sky-High Figures For Auto Loans
Meanwhile, the average monthly payment is slightly less than $1,000, but still an eye-watering figure nonetheless. Most Americans pay around $756 per month for their auto loans, a figure that itself is up $16 from the summer of 2024. Freep spoke to Edmunds’ Ivan Drury, who said that buyers are taking longer loan terms to get payments low enough to afford them. Increasing the loan term does lower the monthly payment, but it usually also results in a buyer paying more in interest over time, and less towards the initial loaned amount, or “principle.”
In Q2 this year, a shocking 22.4 percent of new-vehicle financing loans were 84 months or longer. It’s a record, and it also means you’d be on the hook for nearly a decade during an 84-month loan period. Head out and buy a new car today at 84 months, and you’ll be done in July 2032. Longer terms are similarly on the rise.
Car Costs In Step With Loan Terms
Predictably, higher vehicle costs are at the core of the issue. The average amount financed for a new car is around $42,400, which is up from $40,900 a year prior. It’s also an all-time high at a point in time where the US auto market faces further price increases for years to come as a result of tariffs. Averaged out, here’s how all this breaks down: the median new car loan is for 69.8 months at approximately $756 with a 7.2 percent APR. A year back, it was an average of 69 months and 7.3 percent APR.
“It’s clear that buyers are pulling the few levers they can control to manage affordability, whether that’s by taking on longer loans, financing more, or putting less money down — even if some of those decisions increase their total costs”
Souce: Detroit Free Press
Read the full article here
