Car payments just hit a record $787 a month—and 1 in 4 new-car buyers is now signing a 7-year loan

American drivers face a daunting market. The average monthly payment on a financed new car hit a record $787 in the third quarter, according to Edmunds, up from $777 in the second quarter and $756 a year earlier.

Buyers are also borrowing more than ever. The average amount financed climbed to a record $44,664, while the average new vehicle sold for $50,562 in September, per Kelley Blue Book, just $52 shy of the all-time high. Nationwide, auto loan balances reached $1.71 trillion in the second quarter, according to the New York Fed, roughly 56% more than a decade earlier.

For Joseph Yoon, consumer insights analyst at Edmunds, the math is brutally simple: Vehicle prices sit near record highs, and interest rates remain stubbornly elevated, with the average new-car APR holding at 7%.

“Mix those things together and then you get record-high monthly payments,” Yoon told Fortune. “Just how the math works out.”

The road that led to record car payments

So how exactly did we arrive here? Yoon points to the pandemic as a significant precursor to the state of car sales. When factories shut down and parts ran short, manufacturers faced a choice: build fewer cars, or build the ones with higher margins. They chose the latter.

“Automakers realize, ‘Hey, even if we lose a couple million units across the board, if we have high margins, our profits look great,’” Yoon said. “And that’s perfectly fine. But as consumers, we drew the short straw, and have to pay for elevated prices.”

The result: New vehicles now cost about 30% more than they did six years ago, as Fortune has reported.

For buyers struggling to afford today’s prices, the dealership finance office offers a tempting solution: stretch the loan.

Indeed, a record share of new-car buyers decided that a seven-year loan sounded less scary than the alternative. In the third quarter, 25.5% of financed new-car purchases carried terms of 84 months or more, according to Edmunds, up from 23.9% the prior quarter and 21.8% a year earlier. Even so, a record 21.2% of buyers committed to monthly payments of $1,000 or more.

But longer terms carry consequences, some of which aren’t immediately obvious.

“The longer you have a loan term, technically the longer you’re paying just toward interest, not toward the principal of the loan, especially when the interest rates are so high,” Yoon said.

The average amount of interest paid over the life of a new-car loan reached a record $9,938 in the third quarter, up from $9,442 a year earlier, Edmunds found. That increase came even though rates didn’t budge; Edmunds attributed it to buyers financing larger amounts over longer periods.

Helen Colby, an assistant teaching professor at Carnegie Mellon University’s Tepper School of Business, told Fortune that the true cost of an 84-month loan can go well beyond the accumulation of interest.

“For borrowers who already have tight budgets, getting such a long loan means committing themselves to five, six, or even seven years of increased spending that will reduce their budget for other things like vacations, savings, or even necessities like food and clothing,” Colby said.

And there are no signs of imminent relief. The average APR on new-car loans was 7% in the third quarter, unchanged from the previous quarter and a year earlier.

“Especially towards the end of the year, I don’t think anything’s going to change,” Yoon said.

Are car buyers reaching a breaking point?

Logic would suggest that at a certain point, buyers would simply refuse to pay such prices for cars. If there is a tipping point, though, it’s still on the horizon, Yoon said.

“We keep thinking that there might be some type of tipping point. Are sales going to crater? And we haven’t seen anything like that. Sales are fine,” Yoon said. “Despite these record prices, despite the kind of overall ‘bad vibes’ in the economy for most people, car sales haven’t really suffered all that much, if at all.”

Edmunds’ head of insights, Jessica Caldwell, called the latest data “a remarkable display of consumer resilience” in the company’s quarterly report.

The reason points to a phenomenon economists call the “K-shaped economy.” “The people that are buying new cars tend to be households with six-figure incomes,” Yoon said. The share of new-car buyers earning less than $100,000 fell to 37% last year from 50% in 2020, according to Cox Automotive. So although many people feel priced out of a new car, there’s no shortage of buyers at the top to make up the difference.

Buyers at the bottom of the K-shaped economy feel the pinch

Fortune spoke with one person feeling the crunch of the new-car market. Abbey Burbach, 35, said she can’t afford a new car despite working three jobs totaling 50 to 60 hours a week. “You’re lucky to find a new car for under $400 a month anymore.”

Burbach said most of her peers who drive newer-model cars didn’t buy them; they inherited them from benevolent elders. “I know a lot of people who basically begged their parents not to trade in their car,” she said.

The trend is more than anecdotal, Yoon said: The average age of a new-car buyer has been rising. “It was on a downward trend for a while, but it’s gone up the last couple of years because, again, young people in this kind of market are finding it more and more difficult to be able to buy a car.”

The used car market offers little relief

For buyers priced out of new cars, the used market has always been the fallback plan. That calculus isn’t so simple anymore.

When new-car inventory dried up during the pandemic, buyers flooded the used market instead, and prices responded quickly, Yoon said. The average used-vehicle transaction price rose from $20,942 in the second quarter of 2020 to $27,306 by the third quarter of 2021, according to Edmunds data. Today, used-car buyers who finance borrow an average of $30,703 at a 10.6% APR, Edmunds says.

Those prices have largely stayed put, thanks in part to a slump in leasing. Before the pandemic, leases made up roughly 30% of new-vehicle deals, according to J.D. Power. That share fell to 17% during the shortage and had recovered only to about 23% in the first half of 2026, the firm’s data shows.

Why does it matter? Because leased cars are a primary source of used inventory for dealers once they’re returned.

“These cars come back within 24 to 48 months, or typically 36 months,” Yoon said. “And when that source dries up, literally millions of used cars that are supposed to come back to dealer lots every year aren’t coming back anymore. That has had a pretty dramatic impact on pricing used cars.”

Some help is on the way: Off-lease volume is expected to climb to about 2.66 million vehicles this year and 3.29 million in 2027, up from roughly 2.15 million in 2025, according to Experian estimates cited by JPMorgan. For now, though, buyers are still feeling the squeeze from every direction.

“We have this huge revolving circle of negative effects on the market for the consumer,” Yoon said. “There’s nowhere you can catch a break.”

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