Record monthly vehicle payments and longer loan terms are raising new concerns about how consumers will manage the cost of car ownership. Jessica Caldwell, Head of Insights at Edmunds, joins today’s CBT Live segment to discuss Q3 financing data and the financial risks that can follow when shoppers trade vehicles before paying off their loans.
According to figures cited during the segment, new-vehicle payments have reached a record $787 per month, and roughly one in four buyers now finance for 84 months or longer. Caldwell said the Q3 data showed “record here, record here, record here,” and more than 20% of buyers now pay over $1,000 per month. She also said average down payments declined, meaning consumers are financing more of each purchase. She said the average buyer pays about $10,000 in interest over the life of a new-vehicle loan, and longer terms add risks for buyers who trade in their vehicles before they pay off their balances and carry negative equity into their next purchase.
Affordability pressures extend beyond the new-vehicle showroom, which makes used cars a less accessible alternative for some shoppers. Caldwell said consumers often start by shopping for new vehicles before moving to used models, but higher prices and financing costs can limit options in both markets. While used-vehicle supply also remains constrained, prompted by lower new-vehicle sales during the pandemic and the semiconductor shortage, the national lease rate has fallen to about 19% of retail sales. That lower lease penetration could reduce the number of near-new vehicles returning to the market in the coming years, which limits a key source of certified pre-owned inventory. Caldwell said Edmunds expects overall vehicle sales to reach about 16 million this year, matching last year, but new-vehicle inventory has settled near 2.7 million to 2.8 million units, compared with about 4 million before the pandemic.
Looking ahead, Caldwell said affordability is unlikely to improve overnight, but global competition could push automakers to develop more accessible vehicles. She pointed to Chinese manufacturers’ ability to produce lower-priced vehicles with competitive features and said their eventual entry into the U.S. market could push established automakers to respond. Rather than relying on consumers to stretch their budgets further, manufacturers may need to rethink product offerings and pricing to compete for shoppers seeking value. For dealers, that means understanding demand across price points as consumers balance vehicle needs against other household expenses.
