Buying a car in the post-pandemic economy is expensive, and the data shows it’s catching up with people. A growing share of auto loans are going unpaid, with over 5% of all balances at least 90 days overdue in the third quarter, according to the latest analysis by the Federal Reserve Bank of New York. That’s the most for any quarter since 2020.

Americans are falling behind for multiple reasons, but the biggest is simply how quickly car prices have risen. In September, the average buyer paid over $50,000 for a new car — a record high and a good $10,000 more than they did in 2020. Analysts said tariffs have begun to work their way through the supply chain, though the average price was also inflated by a rush to buy pricier EVs before tax incentives expired at the end of September.

The spike in cost has had major ripple effects on financing, too. With monthly loan payments increasingly topping $1,000 a month, a growing number of people are opting to extend their loans in order to avoid that expense. In the second quarter, a record 22% of shoppers opted for seven-year loans rather than the more typical three- to five-year term, according to Edmunds data.

Not only do borrowers pay more overall interest when they extend their loan, but the longer the loan, the higher the interest rate tends to be. (Fewer financing incentives have also driven auto loan rates up — despite the fact that the Federal Reserve has started cutting benchmark rates.)

So what? Auto loans are often a necessity, given that many people can’t afford to buy a car outright and 45% of Americans lack access to public transportation. But there are risks, especially these days.

Since vehicle values decline with age, carrying debt on a car for an extended period puts you at greater risk of owing more on the loan than your car is worth. An underwater car loan can be especially problematic if you and your car part ways before you’ve paid it off. That was the case for more than one in four auto trade-ins in the second quarter of this year. When borrowers financed the remainder of their old loan with their new vehicle, it resulted in an extra large payment.

If you’re struggling to make your auto loan payments, contact your lender or servicer as soon as possible to see whether an arrangement can be made. You may be able to work something out before any missed payments damage your credit score — or force you to surrender your vehicle.

It’s also worth exploring your refinancing options. (SoFi’s marketplace helps you compare lender quotes quickly.) And remember: There are broader economic dynamics at play here. Rapidly rising prices, financing rates, insurance premiums and repair costs have made it harder for people to predict the cost of car ownership. Plenty of other people have also been caught off guard.

If you’re getting ready to buy a vehicle, here are some important things to keep in mind:

•  Shop far and wide: Don’t be afraid to take a road trip to search for more affordable cars. And check with as many lenders as you can to make sure you’re getting the best rates.

•  Prepare for dealership jiu-jitsu: You’re paying tens of thousands of dollars, so now’s the time to speak up. Try to negotiate incentives and question any markups you didn’t request. You may be surprised by how effective you are.

•  Explore selling your car rather than trading it in: The used car market is hot right now, and you’ll often get more money selling directly than by trading it in to a dealership, according to Edmunds. Check your car’s resale price and what dealers are offering, just to be sure.

•  Buy American-made to claim the new interest deduction: Through 2028, eligible borrowers can deduct up to $10,000 in auto loan interest on their taxes if they buy a new U.S.-made vehicle.

•  Consider all of your auto-related costs: If you’re taking on a bigger car payment — or a first car payment — don’t forget there’s more to it than that. Make sure you can afford car insurance, repairs and maintenance, gas, and registration fees.

Related Reading

Take Control of Your Auto Loan (Consumer Financial Protection Bureau)

Cost of Car Ownership Calculator (Edmunds)

Should You Refinance Your Auto Loan or Trade in Your Car? (SoFi)

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