The trend of increasing car payments reflects significant changes in the auto financing landscape. A recent report from Edmunds highlights that nearly 20% of new car buyers are now dealing with monthly payments of $1,000 or more, a figure that represents a record high. This shift is largely attributed to consumers opting for longer loan terms, with loans lasting 84 months or more making up 22.4% of new-vehicle financing, a notable rise from the previous year.
Despite these longer loan terms, the average down payment has decreased slightly, indicating that buyers are attempting to manage affordability in the face of high interest rates. Currently, the average annual percentage rate (APR) for new vehicle loans stands at around 7%, and 0% finance deals have become exceedingly rare.
Auto loan debt has now reached $1.64 trillion, making it the second-largest category of consumer debt after mortgages. The average monthly car loan payment has increased significantly since the pandemic, from $570 in 2019 to $756 in the most recent quarter. This rise, coupled with elevated delinquency rates, has raised concerns about the potential for a car loan bubble.
Despite these challenges, there are some signs of stability. For example, Experian’s report showed a slight decline in the share of auto loans and leases 30 days past due. However, the rate of subprime borrowers who are at least 60 days late on payments remains concerning, having reached its highest level since 1994 earlier this year. These dynamics suggest that while there are areas of concern, the overall picture of auto loan debt is complex, with varying indicators of financial stress.