Americans Have $1.66 Trillion of Car Debt – 5 Ways to Make Sure You Don’t Buy Too Much Car

The American love affair with cars is not just imagination. From sprawling suburbs to cross-country road trips, the automobile is woven into the fabric of daily life. But here’s a number to make you hit the brakes: the Federal Reserve Bank of New York says that as of end of 2024, Americans owe a staggering $1.66 trillion in auto loan debt, a 73% jump from a decade ago.

That makes car loans the second-biggest debt pile behind mortgages. With the average new car payment hovering around $742 a month, according to Experian, it’s clear many are stretching their budgets thin. So, how do you avoid buying too much car and joining this debt club? Let’s drive through five practical ways to keep your wheels — and wallet — aligned.

1. Stick to the 20% rule

The first simple guideline to follow is to not let your car payment eat up more than 20% of your monthly take-home pay. If you’re bringing home $4,000 after taxes, that’s $800 max for your ride — loan, insurance, gas, the works. Why? It leaves room for rent, groceries, and the emergency fund you should be building.

LendingTree stats back this up: the average new car loan is $41,572, and at today’s rates (around 7% for prime borrowers), that’s $780 monthly over five years. Push beyond 20%, and you’re flirting with straining your budget, especially if gas spikes or repairs pop up.

Before you sign, run the numbers. If your dream SUV busts the 20% cap, scale back to a sedan or a used model. Your bank account will thank you.

2. Buy what you can afford in cash (even if you don’t)

This rule requires a mindset shift. Imagine paying cash for your car — every dime upfront. It forces you to eyeball cheaper options and dodge the debt trap. Now, most folks can’t drop $30,000 on a new ride, and that’s fine. Loans exist for a reason. But setting a cash ceiling keeps all four wheels on the ground.

If you have $15,000 saved, aim for a car in that ballpark, even if you finance. And that includes used cars. Although used car prices are up (though down from their peak of a few years ago), Experian says the average used-car loan is $26,468, way less than new. You can still find deals on good, used cars under $20,000 that are still rolling strong at 50,000 miles.

Financing $15,000 at 6% over four years is $356 monthly, or half the bite a new car will take. You’ll sleep better not owing $1.66 trillion’s worth of car.

3. Skip the long-term loan lure

Dealers love dangling 72- or 84-month loans. Lower monthly payments sound sweet, but it’s a long, slow blood-letting. Experian says the average new car loan term is 68 months, and longer terms mean you’re underwater (owing more than the car’s worth) for way too long.

A $40,000 loan at 7% over 72 months is $667 monthly, but you’ll pay $8,000 in interest. If you cut it to 48 months, it’s $956 monthly, but with $5,900 in interest. Sure, the payment stings more now, but you’re free faster and less likely to roll negative equity into your next ride.

The auto loan morass is bloated by folks stretching loans past their car’s prime. Keep it short: 48 months max. You’ll dodge that car wreck.

4. Don’t fall for the upgrade hype

Car ads push the latest technology like self-parking or monster dashboard screens like it’s a must-have. But you need to ask yourself, do you need it? That $50,000 SUV with bells and whistles depreciates 20% the second you drive off off the lot — $10,000 gone out the window. Meanwhile, a $25,000 base model keeps chugging along, losing less upfront.

The New York Fed notes 4.8% of auto loans were 90+ days late in the fourth quarter, up 15.8% from 2023, partly because folks overbuy on features they can’t sustain. Skip the fancy trims. A reliable engine and decent mileage beat a sunroof any day. Take the basic version for a test drive. If it gets you to work and back, you’re not missing much and you’re not adding to that $1.66 trillion burden.

5. Shop smart: timing and haggling matter

Timing is still everything. Hit dealerships late in the month or quarter when sales quotas loom. They will be more likely yo cut deals. December remains a goldmine too — the 2024 models need clearing for 2025 stock.  And don’t just nod at the sticker price. Pair that with haggling.

Kelley Blue Book’s fair price is the go-to arrow in your quiver. If a $35,000 car’s market value is $32,000, start there. Used car prices ticked up 0.9% year-over-year in February, according to the Bureau of Labor Statistics, but new ones dipped 0.1%, so shop both. Online tools like TrueCar or Edmunds show local averages so make the best use of them. Don’t fall in love with the car on the lot and be ready to walk away — numerous times, if needs be — to save money. Any money saved is cash not swelling that adding to the debt mountain.

Why this matters now

That $1.66 trillion auto debt isn’t just a number, it’s a flashing red warning. Americans borrowed $175.1 billion in new auto loans in the fourth quarter alone, and delinquencies are climbing. Some 8.1% of loans were 30+ days late, up from 7.7% in 2023. Cars lose 60% of their value in five years, yet folks are financing $40,000-plus rides over six or seven years. It’s a recipe for being upside down on your loan and it’s wrecking budgets.

Inflation is easing, down to 2.8% now, but rates around 7% keep loans pricey. Overbuy your next car, and you’re not just stuck with a payment, you’re stuck in a cycle of rolling debt into the next car.

Don’t look at cars as an investments. They’re not. They are depreciating assets. They’re simply tools. Unlike homes, they don’t build equity and they shed it fast. That massive auto debt pile reflects a cultural itch to drive more than we can afford.

The Fed says there are 108 million auto loans are out there. And Gen Z is worse off, shelling out 20% of after-tax income on cars, which rivals mortgage payments. But you don’t have to play that game. Stick to 20%, aim for cash-range purchases if possible, or keep any loans short. Skip the frills and shop savvy. It’s not sexy, but it works.

Your next move

Before you hit the dealer lots, crunch your numbers. Pull your take-home pay, set that 20% cap, and browse used-car  options under $20,000. Check KBB for fair prices, then hit the dealers later in the month. Take the base model for a test drive, and if it rolls, that’s good enough.

Also, make sure to finance your new ride for 48 months or less if you must. You’ll dodge the $1.66 trillion trap and still get where you’re going.

Look, I’m not a financial adviser, so there are just my opinions, but this approach keeps it real. Americans are drowning in car debt because too many buy too much car. Be the exception and drive smart, not broke.

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