Edmunds: Auto Debt Rises as Loans, Payments Grow

Edmunds' latest analysis shows average loan amounts and monthly payments rising for both new and used vehicle buyers across the United States. The firm attributes the trend to higher vehicle prices and tighter financing conditions.

Edmunds found that many borrowers are increasing the amount they borrow and stretching loan terms to keep monthly payments manageable. The firm reports that longer repayment schedules have become more common, with a growing share of buyers selecting terms that extend beyond five years.

Interest rates on new credit remain above the lows seen in recent years, which raises monthly costs even when lenders offer similar terms. To lower immediate monthly outlays, lenders and borrowers are agreeing to extended-term loans, a move that reduces monthly payments but increases the total interest paid over the life of the loan.

The analysis highlights a rise in negative equity, where outstanding loan balances exceed vehicle values. Edmunds found these underwater positions are more frequent on recent purchases financed when prices were higher, complicating trade-ins and early payoffs for consumers who want to replace vehicles before a loan is paid off.

Edmunds broke down the pattern by market segment. On new vehicles, factory and dealer pricing is pushing borrowing needs higher. In the used market, supply constraints and elevated asking prices are keeping values above pre-pandemic levels, which raises the amounts buyers must finance.

Buyers are responding in several ways: some are making larger down payments, some are choosing lower-cost models, and some are turning to leasing instead of long-term loans. Lenders continue to offer a range of products aimed at lowering monthly payments, including extended-term financing. Edmunds notes those options generally increase the total cost of ownership.

Edmunds placed the findings alongside broader consumer credit trends, saying total outstanding auto debt has been rising and auto loans remain a significant component of household borrowing. The firm recommends that prospective buyers compare financing offers, consider total interest costs and residual values, and plan for the possibility of negative equity if they expect to trade or sell a vehicle before the loan is repaid.