For the first time in history, more than one in five Americans financing a new car are committing to monthly payments exceeding $1,000, according to data from Edmunds. This highlights just how much owning a car is stretching family finances these days.
In the fourth quarter of 2025, a record 20.3% of all financed new-vehicle purchases had monthly payments above the four-figure mark, up from 18.9% a year earlier. The average monthly payment reached an all-time high of $772, while the typical loan amount climbed to $43,759.
‘Faced with persistently high vehicle prices and borrowing costs, many consumers were forced to adapt by financing larger amounts, stretching loan terms and, increasingly, taking on four-figure monthly payments,’ said Ivan Drury, director of insights at Edmunds.
The Disappearing Middle-Class Buyer
Now, households earning less than $75,000 a year make up only 26% of new-car sales — a sharp drop from 37% in 2019, according to Cox Automotive. Conversely, those earning over $150,000 have risen to over 40%.
‘Here’s the paradox: We have inventory under $40,000, it’s just not moving because the buyers who would’ve purchased it can’t afford new vehicles anymore,’ said Erin Keating, executive analyst at Cox Automotive.
Average new-car prices have surpassed $50,000, and the last vehicle under $20,000, the Nissan Versa, was discontinued in December, removing budget options altogether.
Trump’s Tax Break: Promise Versus Reality
Enter the Trump administration’s ‘One Big Beautiful Bill,’ signed on 4 July 2025. Treasury Secretary Scott Bessent has championed the car loan interest deduction, claiming it ‘puts money back in the pockets of working and middle-class families.’ The provision allows eligible buyers to deduct up to $10,000 annually in interest on US-assembled vehicles purchased through 2028.
However, economists say the actual benefits are limited. According to Cox Automotive‘s chief economist Jonathan Smoke, the typical buyer would receive a deduction of roughly $3,000 in the first year of a six-year loan — translating to actual savings of about $660 (£480) for someone in the 22% tax bracket.
To claim the full $10,000 deduction, a buyer would need a loan of around $112,000, implying a purchase price close to $130,000. Such loans account for barely 1% of the market.
Who Gets Left Out
The deduction phases out for individuals earning above $100,000 and joint filers earning over $200,000, disappearing entirely at $150,000 and $250,000, respectively. Used vehicles and leases do not qualify. The car must also have final assembly in the United States — excluding an estimated 80% of vehicles priced under $30,000.
‘The cumulative weight of all these increases has pushed total vehicle ownership costs beyond reach for many middle- and lower-income households,’ said Jeremy Robb, interim chief economist at Cox Automotive.
The Human Cost
According to TransUnion, the average used car payment now sits at $538 a month, nearly matching new-car payments from 2019. New car payments have increased by over 35% since then.
‘Regardless of economic conditions like inflation, if somebody needs a car, they’re going to go out and get one,’ said Satyan Merchant, leader of TransUnion’s automotive and mortgage business. ‘They’re going to spend, so the payments are going to stay elevated.’
With tariffs adding thousands to vehicle prices and budget models disappearing, the gap between those who can afford new vehicles and those who cannot continues to widen — and a temporary tax break appears unlikely to bridge it.
Originally published on IBTimes UK
