More Drivers Now Pay $1,000 or More Each Month for Car Loans: What to Expect in 2026

Buying a car is getting more expensive for many people.

According to data from Edmunds, a car website, over 20% of people who bought new cars in the last part of 2025 are now paying at least $1,000 every month for their car loans. A year ago, this number was under 19%.

People who buy used cars are also feeling the pinch. About 6.3% of used-car buyers paid $1,000 or more a month in late 2025—up from about 5.4% the year before.

Even those paying less than $1,000 are still seeing higher bills. The average monthly payment for a new car reached $772, which is a record high.
 

Why Are Car Payments So High?

There are a few reasons:
 

• Cars cost more: The average price for a new car is now over $50,000.
• People are taking out bigger loans: The typical amount borrowed for a new car is nearly $44,000.
• Loans last longer: More buyers are choosing longer loan terms (like 7 years or more) to lower their monthly payments. In late 2025, about 21% of new car loans were for 84 months (7 years) or longer.
• Interest rates are high: The average interest rate for new car loans was 6.7% at the end of 2025. Only about 3% of buyers got a 0% interest rate, and you need very good credit to qualify for those deals.

 

How Is This Impacting Buyers?

The rise in car costs affects people differently. Wealthier buyers, who have gained from higher stock and home prices, are handling the increases more easily.

For others, especially those with lower incomes, keeping up with these costs is much harder.
 

What’s New for 2026?

 

• Interest rates might fall: The Federal Reserve cut rates three times in late 2025. More cuts may come, but they may happen slowly.
• Potential tax break: There is a new tax deduction on car loan interest—up to $10,000 a year for cars bought between 2025 and 2028. To qualify, the car must be new and made in the USA, and the buyer’s income must be below certain limits ($149,000 for individuals, $249,000 for couples). Most people could save between $300 and $900 a year, especially early in the loan.

 

Tips for Avoiding High Car Payments

 

• Buy a less expensive car or save for a bigger down payment.
• Hold onto your car longer. The average trade-in car is now 7.6 years old, meaning people are keeping their cars longer before buying new ones. This can help you build up savings for your next car.
• Limit overall debt: Financial experts say you should try to keep all your debts—including car loans, mortgage, and credit cards—to less than 36% of your gross income. This helps you avoid stretching your budget too thin.

Buying a car is a big decision, and with prices and interest rates high, it’s important to budget carefully.

Consider all your options and look for ways to save, whether it’s picking a cheaper car, putting down more money upfront, or waiting to buy until conditions improve.

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