Cars have become unaffordable for many Americans. Here's what the numbers show.

By Venessa Wong

At today's prices and rates, even the average used vehicle can exceed some commonly used affordability measures.

High prices and borrowing costs have made it increasingly difficult for households to keep car payments within some affordability guidelines for a median-income household.

American consumers have been squeezed by years of rising car prices, with the average new car now selling for more than $50,000, and the average used car for $27,000.

Rising interest rates, which have increased to 6.35% for new-car loans (up from from 4.09% in 2021) and to 11.19% for used cars (up from 8.59% in 2021), have only put more pressure on car buyers.

Those trends are making it harder for car buyers who need financing, leaving them with few options but to save enough to make a large down payment - which can be a challenge and take a long time - and to look at cheaper vehicles.

While it can feel painful to make a large down payment towards an asset like a car that depreciates rapidly, borrowing too much for it can hold back a household's ability to build wealth when the amount they owe on their vehicle becomes more than the car is worth.

"It can be a hard pill to swallow," Clifford Cornell, a financial planner at Bone Fide Wealth, told MarketWatch. "Generally, the environment just kind of sucks."

"The unfortunate truth is that there are not many magic levers that we can pull" to ease the cost of car ownership, Cornell said. But "are you going to feel good owing $40,000 on a car that you would be able to sell for $20,000?"

"We recommend saving up for a larger down payment, as much as possible, for as long as possible."Joseph Yoon, consumer insights analyst at Edmunds

The average monthly payment on new cars has been more than $700 since 2022, and 20% of new-car loans now have a payment of $1,000 or more.

While traditional budgeting rules recommend spending less than 10% of gross income on all transportation expenses (which includes the monthly payment, gas, insurance and maintenance for all vehicles), households on average spent 12.8% in 2024.

Related: Classic budgeting rules don't work anymore - even if your household makes $100,000. Here's what does.

To keep car costs under control, financial planners Brian Preston and Bo Hanson, hosts of the Money Guy Show, developed a car-buying guideline recommending that people put down at least 20% on a car, pay off the loan in three years or less, and spend less than 8% of their gross income on the car payment - a rule they call "20/3/8." Preston's and Hanson's guideline doesn't include gas, insurance or maintenance.

Using Preston's and Hanson's 8% cap, here are the absolute upper limits on monthly payments for a three-year loan, by income level, to keep drivers from feeling car-poor. Buyers should aim to stay below these ceilings, rather than push up against them, to provide breathing room in their household's budget.

Staying under these caps depends on a buyer's down payment as well as their loan's interest rate, which is determined partly by their credit score. In general, it can be hard to stay below these limits with new cars these days.

For a household earning the median $84,000, the average $50,000 new car would require a down payment of at least 64%, or $32,000, at the average interest rate to stay below the 8%-of-income limit with a three-year loan, as recommended by Hanson and Preston. That far exceeds the 20% down payment contemplated by the 20/3/8 guideline.

Even buying used, which make up 70% of car transactions, doesn't necessarily solve the affordability problem. For a $27,000 used car, a household would need to put down 40%, or $10,800, to keep a three-year payment below the 8% threshold at the average 11.19% interest rate for a used-car buyer. The resulting monthly payment would be around $530.

More on this: Taking out a loan? First make these 5 smart moves to raise your credit score - whether you have weeks or months

Some experts recommend larger down payments to reduce the amount borrowed.

"We recommend saving up for a larger down payment, as much as possible, for as long as possible," Joseph Yoon, consumer-insights analyst at Edmunds, told MarketWatch.

Buyers, however, have been moving in the opposite direction. The median down payment fell to 11.1% by early 2026 from 14.7% in early 2023, according to Edmunds.

Buyers have also been taking out longer loans to reduce their monthly payments. One in four new-car loans is now 84 months, or seven years, Edmunds data show.

Yet even as buyers stretch their loans over longer periods, monthly payments are hovering around historic highs.

The average new-car buyer who financed in the second quarter borrowed $43,610 at 6.35% over 69.5 months, bringing their monthly payment to $765, according to the credit bureau Experian. That's already more than the recommended amount of transportation spending for a household earning the median income - before accounting for gas, insurance and maintenance.

Five years ago, the average new car loan was $35,163 at 4.09% over 69.36 months, with a monthly payment of $575, nearly $200 less per month compared to today.

Used-car buyers who financed in the second quarter this year borrowed $27,852 on average at 11.19% over 67.9 months, bringing the monthly payment to $542.

"When you see loan terms extending to record lengths, down payments shrinking and monthly payments hitting all-time highs, you're looking at a clear recipe for long-term financial strain," Jessica Caldwell, Edmunds' head of insights, said in a statement.

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-Venessa Wong

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10-02-26 1447ET

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