It’s Getting More And More Expensive to Finance a New Car
Key Points
- A perfect storm of increasing vehicle prices, long loan terms, high financing rates and large payments is hurting vehicle affordability.
- The average amount financed for an auto loan is increasing, with the average loan term exceeding 69 months.
- However, loan interest rates are decreasing slightly.
If you’re in the market for a new car but can’t pay cash and don’t want to lease, the only other option for you (aside from just buying a car outright) is to finance. Unfortunately, financing a car looks to be more expensive than ever before.
Related: 15-Year Car Loans Aren’t a Thing, But Americans Are Getting More Comfortable With Long Loan Terms
A Snowball Effect
- Takeaway: Even though interest rates have decreased slightly, financing a new car is becoming more expensive due to higher finance amounts and longer loan terms, and delinquencies are increasing, as well.
Financing is getting more expensive, and it’s created a snowball effect that increases every aspect of buying a car.
Let’s start with the ever-increasing cost of a new car. The average price of a new car as of October 2025 is $49,625, according to Cars.com data, and data company Experian says that the average amount that people are financing is $42,332, up $1,378 from 2024. Because that amount is increasing, buyers are having to take out longer loans to lower their monthly payments; average loan terms are up to 69.07 months, with the bulk of the increase in loan terms happening with loans that are over 73 months. What’s troubling is that in spite of shoppers willingly taking on longer loan terms, loan payments are up, as well. The average monthly payment is $748, up $13 from 2024, and over 17% of all loan payments are over $1,000 a month.
Some buyers who are willing to keep their vehicle for a long period and are also willing to take on these high payments may eventually refinance to get a lower payment, which can help some. Data from Experian says that on average, borrowers are lowering their interest rate by just over 2%, or about a $77 drop in their monthly payment. The downside to refinancing is that it increases loan terms, with the average sitting at just over 90 months, or 7.5 years.
There is a bit of good news in all this, though. Interest rates are down 0.09%, to an average of 6.56%, and that may get a little better as the Fed cut interest rates by a quarter-point on Dec. 10. But that good news gets overshadowed by increasing delinquencies: The amount of people behind on their car payments increased 2.45% in the third quarter of this year, up 0.06% from 2024.
Read More Car Buying News on Cars.com:
- How to Buy a Car, According to Cars.com Experts
- Can a CPO Car Help You Get a Better Auto Loan Rate?
- How Many Years is 72 Months? (For Most Car Shoppers, Too Many)
- Is Buying a Car Tax-Deductible?
- How Do You Get the Best Interest Rate on a Car Loan?
Shop Smart
The best thing a shopper can do to navigate the treacherous waters of vehicle financing is to know what they’re getting into. Look at every aspect of the vehicle’s price and make sure it works for you. Be wary of taking out long loans if you can, too; while it does make the monthly payment look better by lowering it, you ultimately pay more interest over the life of the loan. Don’t let the allure of a shiny new car let you make a bad financial decision that could take years to correct.
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