Car Payments Just Reached a New High—Even With Loan Rates at a 3-Year Low

Car Loan Rates Are at a 3-Year Low After Months of Declines

According to Edmunds, a car shopping and research site, average car loan rates have fallen 0.5 percentage points since September—sinking to their lowest level since October 2022. While that seems like a reason for car buyers to celebrate, there’s not much reason to cheer since monthly payments continue to rise.

Edmunds shows that the average loan amount and average monthly payment have each risen every month since July 2025. Despite lower loan rates, those financing a car now face an average monthly payment of $781—the highest average in Edmunds’ historical tracking.

Why Car Payments Keep Rising Anyway

What’s behind payments rising while rates dip? For one thing, the average amount financed for a new car purchase has steadily increased alongside the price of cars in general. In December 2025, the average amount financed for a new car purchase was $44,361. That’s more than 4% above the $42,648 figure from a year earlier. In fact, car buyers are financing more than ever as of the last quarter of 2025.

It’s not just higher prices that impact affordability concerns. Customers are increasingly choosing longer loan terms to reduce monthly payments, but they end up trading that for higher total interest paid over the loan’s lifetime. In Q4 2025, almost 21% of new-car loans had a term of 84 months or longer, compared to less than 18% a year earlier.

Another factor is interest rates themselves. Yes, rates are down a bit after climbing mid-2025. But compared to a year ago, the average annual percentage rate (APR) for new-vehicle purchases is down only 0.1%: dipping from 6.8% in late 2024 to 6.7% at the end of 2025. What’s more, customers are having a harder time finding competitive promotional rates, with only 3.1% of new-vehicle loans seeing a 0% rate in Q4. That’s down from 3.3% in Q3.

Those looking at used vehicles may fare only a bit better. The average monthly payment for a used car in December 2025 was $568, which is $14 higher than the previous December (an increase of 2.5%). Meanwhile, the amount financed climbed by $1,118, or 3.9%, over the same period. Used-car purchasers also face some of the same concerns as new-car buyers in terms of lengthening loan terms.

How To Weigh Price, Rates, and Loan Length Right Now

A car is often a necessary purchase, forcing customers to deal with unfavorable prices, rates, loan terms—or all of the above. Those who don’t need to purchase a car right away might want to wait and see if the Federal Reserve lowers its benchmark interest rate this year, which could push car loan rates lower. However, it’s uncertain if the Fed will cut, and even if it does, the reduction would likely to be modest.

It’s also possible that waiting could backfire, if it results in a higher purchase price later for the same car. Another approach, therefore, involves considering a less expensive new-car model or going for a used vehicle instead. Similarly, those able to put down more upfront may find they can set themselves up with a more manageable monthly obligation.

Finally, weigh how much a lower monthly payment matters to you vs. saving on interest over the life of a loan. If a lower payment is critical, a longer-term car loan can help. Just make sure you understand how the math works before committing.