šŸŸ¢ Why the Average Car Payment Now Rivals a Rent Check

New vehicle prices, now averaging $47,000, are pushing Americans into longer loans with bigger risks and smaller safety nets.

Author

Thomas Campbell
July 22, 2025

Four Wheel Trends Automotive Newsletter
Issue #134

Happy Tuesday gearheads!

This week, weā€™re diving into why your car payment might be higher than your rent, the $179 Toyota lease deal that raised eyebrows, and a sneak peek at the wildest rides from the 2025 Goodwood Festival of Speed. Plus: whoā€™s winning the robotaxi war, which automakers lead in recalls (spoiler: itā€™s not who you think), and a Ford recall you really need to know about.

Letā€™s hit the gas. šŸ

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In The Know

Americaā€™s Monthly Car Payment Just Hit $739ā€”Hereā€™s Whatā€™s Driving It

A perfect storm of inflation, long-term loans, and vanishing deals is squeezing car buyers harder than ever before.

Why the Average Car Payment Just Hit a Record High (and What That Means for Buyers)

If you are in the market for a new or used car, brace yourself. Your wallet is about to feel the squeeze. The average monthly car payment in the U.S. just hit an all-time high, and it is more than a budgeting inconvenience. It is a sign of how drastically the car market has shifted over the last few years.

The New Normal: $739 Per Month

According to data from Edmunds, the average monthly payment for a new vehicle reached $739 in the second quarter of 2025. Used car payments are not far behind, averaging $563 per month. For comparison, just five years ago, the average new car payment was around $550.

This jump is not just about people buying more expensive or luxury vehicles. It is the result of a combination of factors including rising car prices, higher interest rates, and longer loan terms. All of these trends are making it harder for buyers to afford the cars they need.

Why Payments Are So High

Here are the main reasons monthly payments have climbed to record levels:

1. Vehicle Prices Keep Climbing
New car prices have been steadily increasing for years. The average new vehicle now costs more than $47,000, according to Kelley Blue Book. Supply chain disruptions during the pandemic created shortages, which pushed prices higher. While inventory levels have improved, prices have not returned to pre-pandemic levels.

2. Higher Interest Rates
After years of low borrowing costs, the Federal Reserve raised interest rates to fight inflation. This shift has directly impacted auto loans. The average rate for a new car loan in 2025 is around 7.2 percent, compared to just 4 percent a few years ago. That increase alone can add hundreds of dollars to your total loan cost.

3. Longer Loan Terms
To make payments seem more affordable, more buyers are stretching their loan terms to 72 or even 84 months. While this lowers the monthly payment, it also means paying more in interest over the life of the loan. It also increases the chance of owing more than the car is worth as it depreciates.

4. More Financing, Less Cash
Fewer buyers are paying with cash. Instead, many are financing nearly the full cost of the vehicle. Some are even rolling over negative equity from their previous car loans. That adds to the monthly burden and makes it harder to get ahead financially.

What It Means for Buyers

These changes add up to a challenging environment for car shoppers. The impact is clear:

  • Affordability is shrinking. Experts suggest your car payment should not exceed 15 percent of your monthly take-home pay. With payments now averaging $739, many buyers are overspending.

  • Loan terms are risky. Longer loans mean more time paying interest and a higher chance of being underwater on the loan.

  • Used cars are not always cheaper. Prices for used vehicles remain historically high. In some cases, certified pre-owned cars are nearly as expensive as new ones.

  • Leasing is less attractive. Lease availability has dropped since the pandemic. The terms and deals are not as favorable as they used to be.

Is There Any Relief in Sight?

Possibly. The Federal Reserve has signaled that it may lower interest rates later in 2025. If that happens, borrowing costs could go down. Some automakers are also offering incentives or low-interest financing options to encourage sales.

Still, the reality is that car payments are unlikely to return to pre-pandemic levels anytime soon. What used to be a manageable monthly bill is now closer to a second rent check. Buyers need to adjust their expectations and plan accordingly.

What You Can Do

If you are buying a car right now, here are a few smart steps:

  • Shop around for financing. Compare loan offers from credit unions, banks, and online lenders. Dealers may not offer the best rates.

  • Avoid long-term loans if you can. A shorter loan may come with a higher payment, but you will pay less in the long run.

  • Consider the total cost of ownership. Look beyond the sticker price. Insurance, fuel, maintenance, and depreciation all add up.

  • Wait if you can. If your current vehicle is still running, you may be better off holding out until rates or prices come down.

In short, it is a tough time to buy a car. But with a little research and planning, you can still make a smart financial decision without getting stuck with a payment that breaks the bank.

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