Monthly car payments are hitting highs and Americans are struggling to pay
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Why are Americans struggling to afford new car payments?
Americans are struggling to afford new cars. Those monthly payments are hitting record highs. For a deeper dive, we turn to the KCBS Ring Central newsline and talk with Bloomberg's Keith Naughton. Keith, thanks for the time.
Thanks for having me on,
Holly. So how much is the average person paying per month for their car payment and how did it get so high?
How high is the average monthly payment for a new car and why has it risen?
Yeah, it is up to a record seven hundred and seventy-seven dollars a month for the average car payment on a new car in America. And this is just part of the steady march upward in prices over the past six years. They're up about thirty-two percent since twenty nineteen. Cars now average about fifty thousand dollars. So in order to afford what used to be a luxury price. Car buyers are having to pay more per month, they're extending loans beyond seven years, and the uh amount financed on a new car has also reached an all time high of forty four thousand dollars.
What impact do longer loan terms and 7% interest have on total car costs?
So people aren't putting as much down and the interest rates must also play a part.
Absolutely. You know, there's this affordability crisis in the automotive sector, but there's also inflation at a three year high and just cost of living issues that you see in every way. So what people are doing is focusing on the monthly payment, stretching out these loans. But the problem with that is you end up paying Tons of interest. If you take out a seven year loan at the current seven percent interest rate, you're gonna end up handing over ten thousand dollars in interest alone.
Ooh, ow.
Are used cars or leasing a better option given rising new‑car prices?
Well, I don't know if is is in your purview, but it makes people wonder whether buying a used car is a better idea or leasing.
Yeah, so uh used car prices also are up, but yes, that's where a lot of the former new car market has gone. Really, it's just the top top twenty percent of wage earners in America who are fueling most of the new car market, and everybody else is is buying used, but a used car averages close to thirty thousand dollars. So there are not a lot of great deals out there. The industry hasn't focused on the lower end of the pipe price spectrum. spectrum. Instead they've been focused on the highly profitable SUVs and pickup trucks.
It feels like never mind the luxury SUV that just buying a c any car new is luxury in itself.
It is. I mean fifty thousand dollars for a new car. That that was, you know, BMW Mercedes prices a few years ago. And and now that is the price of entry and it's a price that a lot of people increasingly can't afford.
Why are hybrids and electric vehicles gaining popularity amid high gas prices?
What about hybrids and electric cars, especially since g gas prices were going up? Are people still moving that direction?
Hybrids especially are very hot. Auto sales are out today and hybrids are the big story. And this once again, you know, draws your attention to the affordability issue. As President Trump's war with Iran sent gas prices soaring above four dollars a gallon, people are looking at hybrids and buying them in droves as a way to save money at the pump.
When you look at the amount that people are paying for um new cars, does it feel like some of them are gonna end up defaulting?
Yeah, and we're already seeing that. You know, delinquencies are up. Um and people when you stretch out a loan for seven years and longer, you end up in a situation that they call being upside down on your loan where where your car is worth less than what you owe on it. And people just they can't afford them and they end up defaulting and that's a growing problem.
Are people then just sticking with one car and not getting multiple ones for the family, not getting a a a new car or not even a new car, but a used car for, you know, the kid who just got their license?
Are rising delinquencies and older car ages signs of a looming default crisis?
Right. And one of the things they're doing, one of the coping mechanisms, is just hanging on to their car longer. The average age of a new car is over thirteen or of a car on the road today is over thirteen years. So people are just clinging to their older cars, trying to keep 'em going, fix 'em up, because they can't afford new cars.
Yeah, I was gonna ask whether the mechanics have s seen more people can't get an appointment 'cause so many people are bringing their old cars in.
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Chapters
6 chapters
1
Why are Americans struggling to afford new car payments?
0:00–0:20
2
How high is the average monthly payment for a new car and why has it risen?
0:20–0:55
3
What impact do longer loan terms and 7% interest have on total car costs?
0:55–1:29
4
Are used cars or leasing a better option given rising new‑car prices?
1:29–2:28
5
Why are hybrids and electric vehicles gaining popularity amid high gas prices?
2:28–3:37
6
Are rising delinquencies and older car ages signs of a looming default crisis?
3:37–4:50
Speakers
1 identifiedMore from KCBS Bloomberg Tech and Business Report
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