Stable Car Prices, Rising Payments: The Paradox Shaping America’s Auto Market

Wealthier consumers are continuing to support the US new-vehicle market, even as rising financing costs make car ownership increasingly difficult for many households. Average monthly payments on new-car loans have climbed above $800, adding to affordability concerns despite relatively modest changes in vehicle prices and interest rates.

According to Cox Automotive Inc., the annualized pace of US auto sales is expected to decline 2.1% to about 16.3 million vehicles in the third quarter. Sales are also projected to end 2026 slightly below the 2025 level. However, the results have been stronger than some forecasters anticipated, suggesting that demand for more expensive vehicles is helping offset the effects of inflation and elevated borrowing costs.

J.D. Power reported that the average monthly payment for a new vehicle reached roughly $821 in September, an increase of 3.2% from the same month last year and the highest September level recorded by the company. At the same time, the average transaction price was $45,915, only 0.7% higher than in September 2025. The average interest rate fell four basis points to 6.66%, its lowest September level since 2022.

Loan terms have also continued to lengthen. About 13.9% of new-vehicle loans now run for 84 months or longer, representing a two-percentage-point increase from a year earlier. A higher vehicle price combined with a slightly lower interest rate should generally result in little change to the monthly bill, while extending a loan over seven years can reduce the immediate payment. Yet the average payment has increased by about $25 from approximately $796 last September.

That gap suggests that consumers may be financing more of the vehicle's purchase price. The available forecast does not provide enough information to determine precisely how much comes from larger loan balances, smaller down payments or consumers carrying unpaid balances from previous vehicles into new loans. Nevertheless, the figures indicate that buyers are taking on more debt to complete purchases.

Cox Automotive's Kelley Blue Book reported an average transaction price of $50,089 in August, representing a 1.9% annual increase. Its methodology differs from J.D. Power's, so the figures should not be directly compared. Both sources, however, indicate that new-car prices are increasing gradually rather than surging. Kelley Blue Book also found that incentives declined to 6.5% of the transaction price in August, compared with 7.2% a year earlier.

Incentives vary significantly by vehicle type. J.D. Power said average discounts on gasoline and hybrid vehicles rose 31.6% to $3,319 per vehicle. By contrast, incentives for electric vehicles dropped 21.7% to $8,829. Across the market, the average incentive stood at $3,574, equal to 6.9% of the manufacturer's suggested retail price.

Thomas King, president of OEM solutions at J.D. Power, said EVs accounted for 7.9% of retail sales, down 6.5 percentage points after the expiration of federal electric-vehicle tax credits. Hybrid vehicles gained ground, reaching 17% of retail sales, an increase of 3.5 percentage points.

The shift is significant because EV buyers previously benefited from larger incentives, including federal credits and other financial support. Consumers moving toward gasoline and hybrid models may therefore receive substantially smaller discounts, leaving more of the purchase price to be financed.

The current market consequently presents a mixed picture. Retail demand remains relatively resilient, but consumers are spending more, borrowing for longer periods and potentially contributing less cash upfront. For automakers and dealers, strong transaction values can support revenue. For lenders, however, a growing concentration of lengthy loans, subprime borrowers and vehicles with negative equity could create greater risks if repayment problems increase.

The changing consumer preference is also affecting automaker market shares. Cox Automotive expects the combined market share of the Detroit Three automakers to reach a record low during the quarter as shoppers increasingly favor hybrids and passenger cars. Toyota is also facing additional pressure from tariff-related costs, which could eventually be reflected in showroom prices.