Americans now owe almost as much on their vehicles as they do on federal student loans, highlighting how rising car prices have turned transportation into one of the largest financial pressures on household budgets.
Outstanding US auto loan debt reached a record $1.68tn, according to a report released this week by the Century Foundation, a progressive think tank. Around one in four Americans currently carries car-related debt, placing vehicle financing ahead of total credit card balances and nearly level with federal student loan obligations.
The surge reflects years of escalating vehicle prices and higher borrowing costs following the pandemic. Monthly car payments have risen sharply as households stretch repayment periods to manage affordability, even as interest rates remain elevated.
Monthly Payments Keep Rising Alongside Vehicle Prices
The average monthly payment for a vehicle now stands at roughly $680, according to the Century Foundation report, compared with about $506 in 2018. Industry estimates from research firm J.D. Power suggest some borrowers are paying closer to $760 per month on average for new vehicles.
New car prices have climbed close to $50,000 on average, roughly 30% higher than before the pandemic. Supply chain disruptions initially pushed prices upward in 2021 as semiconductor shortages constrained production, but costs have remained elevated even after inventories improved.
Automakers have increasingly focused on higher-margin trucks, SUVs and premium models, reducing the number of lower-cost vehicles available to consumers. Federal safety requirements and the addition of advanced driver assistance technology have also contributed to higher production costs.
Used cars have offered limited relief. Although second-hand vehicle inflation has cooled since peaking in 2022, prices remain well above pre-pandemic levels. Consumers unable to afford new vehicles have continued competing for used inventory, keeping values elevated.
Longer loan terms have become increasingly common as borrowers attempt to reduce monthly payments. For many lower-income households, loans extending beyond seven years now absorb close to one fifth of monthly income over the repayment period.
The Century Foundation report warned that borrowers with the least financial flexibility are carrying some of the heaviest debt burdens. “Historically high auto costs and interest rates are pushing record numbers of borrowers into longer term loans that raise the total costs of owning a car and keep households in debt,” the authors wrote.
Carmakers Are Chasing Wealthier Buyers
The shift in the car market increasingly mirrors broader income divides across the US economy. Data from Cox Automotive showed that only 37% of prospective new-car buyers last year earned less than six figures annually, down from half of buyers in 2020.
At the same time, higher-income consumers are accounting for a growing share of purchases. Buyers earning more than $200,000 annually represented 29% of the market last year, up from 18% six years earlier.
That trend reflects a wider transformation within the auto industry. According to Kelley Blue Book, the average transaction price for a new vehicle has stayed near record highs for much of the past two years despite softer consumer demand.
Several major manufacturers discontinued entry-level models during the pandemic, prioritising vehicles with stronger profit margins instead. Analysts at Deloitte have previously noted that affordability concerns could permanently alter buying patterns as consumers hold vehicles longer or turn to leasing and subscription-style ownership models.
Rising borrowing costs have also added pressure. Interest rates on auto loans climbed sharply after the Federal Reserve raised rates to combat inflation. Even modest increases in rates can add thousands of dollars to the total cost of a long-term vehicle loan.
Delinquencies Point to Growing Consumer Stress
The mounting debt load is beginning to show signs of strain. A February analysis from automotive platform CarEdge, using Fitch Ratings data, found subprime auto loan delinquencies had climbed to their highest level in more than three decades.
A growing number of borrowers are now more than 60 days behind on payments. Unlike missed credit card bills, falling behind on a car loan can quickly disrupt employment and daily life for households that rely on vehicles for commuting, childcare and essential errands.
More than three quarters of Americans depend on a car to get to work, underscoring why auto debt has become especially difficult to escape. Analysts will now be watching whether cooling inflation and lower interest rates later this year provide any relief for consumers, or whether vehicle affordability continues deteriorating as automakers focus on higher-end buyers.
