Not so long ago, people joked about the folly of owning a thousand-dollar car.
Nowadays, financial experts opine on the folly of making a thousand-dollar car payment.
More than 20% of new car buyers who borrow now take on four-figure monthly payments, Edmunds reports. The average monthly payment on a new vehicle hit $787 in the third quarter of 2026.
Car payments are rising at a time when car buyers are financing larger sums for a longer time. The average new-vehicle loan was $44,664 in the third quarter. More than one quarter of new-car loans have terms of seven years or longer.
A $1,000 car payment “crosses a threshold in our minds that seems unfathomable to many consumers,” said Ivan Drury, director of insights at Edmunds.
A decade ago, the average new-car payment was $500.
The $1,000 threshold is symbolic. Most consumers make only one monthly payment that reaches four figures: Their rent or mortgage payment.
But a house and a car are very different assets. One tends to go up in value. The other tends to go down.
Here are five reasons why a $1,000 car payment might be a bad idea.
A Car Is a Depreciating Asset
Strictly speaking, a car “is not an investment,” said Ernie Wingard of Capital Choice Financial Group in North Richland Hills, Texas.
Or, at least, not a good one.
Vehicles tend to lose value as they age. A new car generally loses about 20% of its value after one year, 60% after five years, according to LendingTree.
As any economist would tell you, it’s a waste of money to invest a large sum in anything that is steadily losing value.
“You’re paying a lot more for an asset that’s going to depreciate,” said Chuck Bell, a financial policy advocate at Consumer Reports. “Is that a good value for you, versus buying a used car, a car that’s coming off a lease?”
You May Be Breaking the 10% Rule
Financial advisers come up with lots of rules. One is a 20/4/10 rule for car buyers. It says you can probably afford a car if you meet three criteria:
- You can afford a down payment that totals 20% or more of the car’s price.
- You finance the car with a loan that has a term of four years or less.
- Your monthly car expenses, including the loan payment, don’t exceed 10% of your income.
The rule may not be realistic for car buyers in 2026. The average new car loan now runs 67 months, which is more than five years.
Financial experts do say, however, that car buyers should try to follow some version of the 10% rule.
First, think about the rising costs of insurance, fuel and repairs. They could easily raise the total cost of car ownership from $1,000 a month to $1,500.
“The true cost of a thousand-dollar car payment is not just $1,000 a month,” Wingard said.
You could aim for a total monthly car cost that’s less than 15% of your take-home pay, or a car payment (by itself) that eats up less than 10% of that amount.
To assume a $1,000 car payment and follow the 10% rule, based on take-home pay, “You’d have to be making over $120,000 a year,” said Kimberly Palmer, a personal finance expert at NerdWallet.
You Could Be Saving or Investing the Money
Your $1,000 car payment covers principal and interest on a loan. The average new car loan carries an annual interest rate of 7%.
What if you were earning 7% annual returns on the same money? You could do at least that well by investing $1,000 a month in the stock market, based on recent performance.
If you deposited $1,000 a month into a brokerage account that earned 7% a year, you would have roughly $73,000 after five years, according to a NerdWallet calculator.
You could also use some or all of that $1,000 to build an emergency savings account. Financial planners recommend we all have emergency savings that could cover three to six months of our expenses.
A four-figure car payment “makes it harder to build up an emergency fund, or any other kind of long-term savings,” Palmer said.
You Will Have Less Financial Freedom
More broadly, a large car payment squeezes the rest of your household budget, leaving you that much less money to spend on anything else.
“It reduces your financial resilience,” Palmer said.
What if your family faces an unexpected health care expense, or a big home repair?
“Anything that pops up, you’re less able to deal with it,” Palmer said.
Remember, too, that your other monthly bills will probably keep rising.
“You need some room in your family budget to handle other things that are increasing in cost,” Bell said.
And what if you suffer a big hit to your household income? A cashflow shock might imperil your ability to make the $1,000 payments on your car loan.
“If you fall behind, you’re going to be in a very bad position going forward,” Drury said.
A growing share of motorists are “underwater” on car loans, which means they owe more than the vehicle is worth, according to trade-in data.
And so, if you become unable to make your $1,000 car payments, you may not be able to get out of debt simply by selling the car.
You Could Have Trouble Getting Other Loans
A big car loan with a large monthly payment could dramatically increase your debt-to-income ratio: how much you owe compared with how much you earn.
A high debt-to-income ratio will make it harder for you to qualify for another loan, such as a home loan.
“Every dollar spent on a car loan counts against your debt-to-income ratio,” Bell said.
“Depending on what your income is,” he said, “a $1,000 monthly car payment could significantly reduce how much mortgage you qualify for, because lenders see it as an ongoing financial obligation.”
Reporting by Daniel de Visé, USA TODAY / USA TODAY
USA TODAY Network via Reuters Connect
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