High New-Car Payments Strain Buyers — Here's Why Experts Say Stop

A growing share of Americans who financed a new car recently face high monthly payments — a trend that has risen sharply in recent years, according to data cited in various reports. The average new-car payment in the second quarter of 2026 was $765, and $542 for used vehicles, per credit agency Experian. A payment well above average is not just above average — it is a warning sign that several compounding financial traps may already be in motion.

Three forces have converged to push buyers into high payments: average new-vehicle prices have climbed, interest rates on new auto loans remain elevated, and loan terms have stretched to 72, 84, or even more months as buyers try to keep monthly costs manageable. The result is a record share of borrowers locked into payments that financial experts say create serious long-term damage.

Here are the five reasons experts say a high car payment is a bad idea — and why each one compounds the others.

1. Cars lose value fast. In a normal market, a vehicle loses roughly 20% to 30% of its value in the first year alone, according to NerdWallet. A high monthly payment typically reflects a large loan on an expensive vehicle — meaning the asset backing that debt is shrinking quickly even as the borrower pays it down slowly.

2. Long loan terms create negative equity. To arrive at a lower payment rather than something higher, many buyers stretch their loans to 72 or 84 months. NerdWallet's analysis shows that on a $25,000 used-car loan at 9% interest, choosing a 72-month term over a 48-month term costs nearly $2,600 more in total interest. More critically, the average auto loan length is now nearly 70 months for both new and used cars — long enough that many borrowers reach a point where they owe more than the car is worth, a condition known as being 'upside down' or having negative equity.

3. Total ownership costs run far higher than the payment. The monthly figure covers only the loan. Insurance, fuel, and maintenance add substantially to the true monthly cost of ownership — meaning a buyer who budgets around the payment alone is likely underestimating what the car actually costs each month.

4. The payment crowds out wealth-building. A large monthly sum directed at a depreciating asset is money not going into savings, retirement accounts, or investments. Over the life of a long loan term, the opportunity cost of that diverted cash is significant.

5. It damages your ability to borrow for anything else. A high car payment substantially raises a borrower's debt-to-income ratio — a key metric lenders use when evaluating mortgage or other loan applications. Buyers who commit to such a payment may find themselves unable to qualify for a home loan or other credit when they need it.

NerdWallet recommends keeping a car loan payment at no more than 10% of take-home pay when possible, and limiting loan terms to no longer than 60 months for new cars and 36 months for used cars. The outlet also notes that the average loan length has already blown past both of those thresholds for most buyers.

For buyers trying to avoid the trap, the levers are limited but real: a larger down payment or trade-in reduces the principal; a shorter loan term reduces total interest paid; and choosing a less expensive vehicle — or a used one — lowers the starting point. NerdWallet suggests using an auto loan calculator to set a maximum vehicle price and interest rate that produce a payment within the 10% guideline, rather than working backward from a car and hoping the payment fits.

Why it matters — With one in five new-car buyers already past the $1,000-a-month mark, understanding the five compounding financial risks — depreciation, negative equity, hidden ownership costs, lost investment opportunity, and damaged borrowing power — can help any car shopper avoid a payment that outlasts the car's value.

Reported by nerdwallet.com, supermoney.com, usatoday.com, washingtonpost.com