Roughly one in four Americans are paying off auto debt, according to a report published Wednesday by the Century Foundation, a progressive think tank, and are overall on the hook for a record $1.68 trillion in car loans or outstanding payments. Those figures out auto loans on par with all outstanding federal student loan debt ($1.69 trillion of federal debt and $1.84 trillion total) and ahead of credit card balances ($1.28 trillion outstanding as of last year). 

It’s the end result of years of rising prices for cars, an item that has fast outpaced inflation since the pandemic. In a country as car-reliant as the U.S., expensive cars and auto debt have quickly spiraled into one of the largest monthly obligations in household budgets. The average monthly payment on a car is now around $680, according to the report, up almost 40% from 2018, when drivers could expect to pay $506. Some projections have calculated even bigger monthly payments, as much as $760 on average, according to one January estimate from J.D. Power, an industry research firm.

The numbers are especially painful for lower-income households who have to spread payments out over longer periods, significantly raising the total cost of a loan. For the average borrower paying off a car loan longer than seven years, their payments add up to nearly 20% of their average monthly income for the lifetime of their loan.

“Historically high auto costs and interest rates are pushing record numbers of borrowers into longer term loans that raise the total costs of owning a car and keep households in debt,” the report’s authors wrote. “Paradoxically it is low-income borrowers, with the least disposable income, that carry the most auto loan debt.”

An expensive necessity

The scale of the country’s auto debt burden underscores how much the car market has changed since the COVID-19 pandemic. Car prices started ticking up around 2021, as shortages of computer chips and other manufacturing components squeezed the available inventory of new cars. But prices never really stopped rising. These days, new vehicles sell for an average of almost $50,000, a 30% increase since 2019. 

While supply chain issues have faded, drivers have been faced with other headwinds. Manufacturing costs are higher in part because of many new high-tech features cars come with, such as assisted steering and rear view cameras, some of which are now required by federal law. Many automakers have also prioritized the middle-market or luxury options, moving away from providing affordable models, some of which were the first to be discontinued during the pandemic.

The new car market in the U.S. has increasingly become another reflection of the country’s K-shaped economy, as lower income earners occupy a shrinking share of carmakers’ customer base. Last year, just 37% of people in the market for a new car had salaries smaller than six figures, down from 50% in 2020, according to data published earlier this year from Cox Automotive, a technology provider. Meanwhile, high-earners are rapidly catching up, with the share of buyers with incomes exceeding $200,000 rising from 18% to 29% over the past six years.

Expensive new buys would usually push more shoppers into the used car market, but with so many people consistently priced out of new vehicles over the past five years, second-hand purchases have hardly been a bargain. While used car inflation has moderated somewhat since its peak in 2022, prices are still 29% higher than before the pandemic.

The eye-watering prices have pushed more and more drivers into taking out long-term loans to finance their car purchases, adding to the country’s crushing consumer debt burden. Subprime auto loan delinquencies are now more common than in 32 years, and a record number of borrowers are more than 60 days behind on payments, according to a February analysis from CarEdge, a shopping platform, based on data from Fitch, a ratings agency. 

Consumer delinquencies have risen across the board over the past few years, but auto loans can be different. More than three quarters of Americans rely on their car to get to work, with many more needing a vehicle to take their children to school, get groceries, or simply move around in places where public transportation is limited. Defaulting on a credit card payment can lead to fees and a credit score hit, but for many Americans, much more is at stake if the repo man comes for their car.