Car buyers are increasingly extending loan terms to manage vehicle purchase costs, with a record share of financed new-vehicle sales featuring loan periods of 84 months or longer in the third quarter. According to data from Edmunds, 25.5% of financed new-vehicle purchases had such extended terms, up from 21.8% the previous year. Despite this shift, monthly payments have continued climbing, reaching an average of $787, compared to $756 the prior year.
The rise in payments reflects broader increases in vehicle costs and financed amounts. The average sum financed for a new vehicle reached a record $44,664 in the third quarter, up from $42,744 a year earlier. New-car transaction prices have also increased, with the average vehicle costing $50,089 in August, representing a 1.9% increase from the prior year. Analysts note that the need for such extended loan periods may indicate vehicles are beyond buyers’ budgets, suggesting consideration of used vehicles or less expensive models.
Multiple economic factors are pressuring consumer finances. Inflationary pressures continue to constrain household budgets, and consumer spending has outpaced income growth, a gap increasingly funded through financial assets rather than regular paychecks. Gasoline prices have risen substantially, with regular unleaded gas averaging $4.36 as of Monday, up from $3.13 a year earlier. Financing costs remain elevated, with new-car loan rates holding at 7% annually in the third quarter, and upward pressure on rates expected due to elevated bond yields.
Extended loan terms carry financial consequences for borrowers. A record 21.2% of financed new-car purchases featured monthly payments of $1,000 or more in the third quarter, up from 19.1% the prior year. The average interest paid over a loan’s lifetime reached a record $9,938 in the third quarter, up from $9,442 previously. Longer loan periods also slow equity building, increasing the risk that borrowers will owe more than their vehicles are worth. Nearly 30% of vehicles traded toward new purchases had negative equity in the second quarter, forcing buyers to either pay off remaining balances or roll them into new loans.
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