Car payments hit a new record during the second quarter. With high interest rates and higher sticker prices, car ownership is becoming increasingly expensive, deepening the affordability crisis. On today’s episode of CBT Now, Joseph Yoon, Consumer Insights Analyst at Edmunds, joins us to discuss what’s lurking behind the numbers.
Currently, the average monthly auto payment is over $750. However, Edmunds discovered that $1,000 car payments have hit a record high, with nearly 20% of new-vehicle shoppers committing to these high-cost financing terms.
The cost of vehicles has increased dramatically over the past five years. When wages aren’t growing in relation, the result is a sharp rise in affordability concerns. Yoon points out that even well-qualified buyers with excellent credit are being offered high interest rates closer to 7%. Because of the high costs, more borrowers are opting for 84-month loans, with the numbers doubling compared to six years ago.
"The cost of living has gone up. With the cost of cars going up so significantly and so quickly in the past five years after the pandemic, that's kind of where the crunch has happened because prices effectively jumped $10,000 overnight."
There’s an urgent need for automakers to produce more vehicles with a lower price point. However, Yoon says that manufacturers have little to no incentive to do so. With limited options on the table, most consumers are being strong-armed into paying higher costs.
The SAAR in June landed at 15 million. Yoon notes that the depressed number is due to consumers who, instead of entering the market gradually from April through June, pulled their purchases ahead to beat the anticipated price increases tied to President Trump’s auto tariffs. But, with the noise surrounding tariffs beginning to quiet, Yoon speculates the market may see a slight uptick in consumer demand in July.
Despite the overall market cooling slightly, several automakers performed well during the second quarter. Two standout examples are General Motors (GM) and Ford. Ford’s decision to extend employee pricing to customers and General Motors’ decision to hold prices steady helped secure consumer loyalty and drive sales.
On July 8, Ford replaced its employee pricing incentive with a “Zero, Zero, Zeo” incentive program. The sales event features a $0 down payment, 0% APR for 48 months, and no payment for the first 90 days. It’s a standout offer, especially since 0% finance deals currently account for less than 1% of the available offers on the market. 0% APR incentives are typically tied to shorter loan terms, such as 36- and 48-month agreements.
Before the pandemic, lease penetration hovered around 30%. Currently, it sits closer to 20% and roughly 60–70% of current lease vehicles are electric vehicles (EVs). Typically, when a lease expires in two to three years, the vehicle returns to the used market. However, more consumers are opting for lease buyouts instead of returning the car, further tightening used inventory. Yoon notes this trend took root during the pandemic, when leasing activity declined significantly, reducing the flow of vehicles into today’s used-vehicle supply.
Yoon also anticipates a short-term pull-ahead as consumers interested in EV options rush to take advantage of the federal EV credit before it expires at the end of September.
Despite the headwinds and political shifts this year, Edmunds has not revised its SAAR forecast for 2025.
