Used car loan rates are through the roof, and so are monthly payments. The average used car payment now sits at $525 per month, with financing costs making even basic transportation a financial strain. With used car interest rates at 40-year highs, many Americans are now forced to choose between paying far more than 10% of their income on a car—or keeping their aging vehicles on the road for as long as possible.

Even used car payments are stretching budgets thin

Interest rates for used car loans are now the highest they’ve been since the early 1980s. Cox Automotive reports that the average used car loan now carries a 14.73% apr. Buyers with lower credit scores are getting hit even harder, with rates approaching 20%.

What does that mean in real dollars? If you finance a $25,000 used car at 15% apr for 72 months, you’ll pay $13,000 in interest. At 20% apr, interest costs soar past $18,000. That means you’ve given the bank enough extra money to buy another car outright.

Bankrate found that the average monthly used car payment is now $525. Add in skyrocketing insurance, repairs, and gas prices and “transportation” is eating up far more than the recommended 10% of the monthly budget of almost every American household. A year ago that by traditional budgeting guidelines, you’d now need to make $100k a year to justify even the cheapest used car.

Why are used car loan rates so high?

The Federal Reserve’s inflation fight has kept borrowing costs high. Even though the Fed paused rate hikes, it hasn’t cut them, keeping auto loan rates elevated. Meanwhile, used car values are still above pre-pandemic levels, making lenders nervous about depreciation. To offset that risk, they’ve tightened lending standards and raised rates across the board.

On top of that, used car supply remains tight. Some buyers are finding that monthly payments on a new car aren’t much higher than a high-interest used car loan—leading them to finance new vehicles instead. CNBC reports that the average new car price is nearing $50,000, but incentives like 0% apr financing are making them more appealing to borrowers with good credit.

How to avoid overpaying for a used car loan

• Check your credit score – Borrowers below 700 often pay more than 10% apr. Improving your score can save thousands.
• Get pre-approved – Banks and credit unions usually offer better rates than dealerships. Compare multiple offers before signing anything.
• Consider a new car – Some new cars qualify for 0% apr financing, making them cheaper to finance than used ones.
• Make a bigger down payment – The less you borrow, the less you’ll pay in interest. Even $2,000 extra upfront makes a difference.
• Choose a shorter loan term – A 36- or 48-month loan comes with lower interest rates than a 72- or 84-month loan. And you’ll pay much less over the lifetime of the loan.

Car buyers are running out of good options

As I previously wrote, many Americans are already spending more than they can afford on car ownership. With loan rates this high, financing a car has never been more expensive. If you need a vehicle in 2025, your best bet is to shop smart, negotiate aggressively, and consider keeping your current car on the road a little longer.

A decade ago, buying a used car was a smart way to save money. In 2025, it’s just another financial burden. Sky-high interest rates are making it nearly impossible for many Americans to finance a vehicle without breaking the bank. Some may delay their purchases, others may downsize their budgets—but one thing is clear: car ownership may be a necessity, but it’s increasingly priced like a luxury.