American consumers are paying more than ever for their vehicles, both in terms of overall cost and monthly payment. A KBB report found that the average new car transaction price ballooned to $48,861 ($65,041 for EVs) in 2022. Prices are so high, the $42,895 Honda Civic Type R is actually below average. According to Edmunds, this drastic increase combined with skyrocketing interest rates has resulted in some truly eye watering monthly payments.

A whopping 15.7% of new car buyers in Q4 2022 committed to a monthly payment of $1,000 or more. This is the highest this percentage has ever been, rising from 10.5% in 2021 and 6.7% in 2020. Even 5.4% of used car payments were over $1,000, up from 3.9% in Q4 2021 and 1.5% in Q4 2020. Meanwhile, fewer people are choosing to lease their vehicles, likely because lease deals are drying up due to supply shortages and other factors.

Part of the rise in monthly payments can be explained by steadily increasing vehicle prices, but higher interest rates are also to blame. The average annual percentage rate (APR) jumped to 6.5% in Q4 2022, up from 4.1% one year ago. That's a sizable increase from just last quarter when the average was 5.7% in Q3 2022.

To offset the higher interest rates, Edmunds says consumers are putting down larger down payments. The average new car down payment went from $5,921 in 2021 to $6,780 in 2022. This number increased from $3,552 to $3,921 for used cars. While some buyers can afford to put more down upfront, others are trading in negative equity and starting off their new loan upside down. 17.4% traded in their vehicle with negative equity, up from 14.9% in 2021.

"Vehicle equity is really a tale of two gears for consumers over the past few years," said Ivan Drury, Edmunds director of insights. "At the onset of the pandemic, consumers benefited from low interest rates and elevated trade-in values, helping shield even the more questionable financing decisions from resulting in negative equity. This unique confluence of market forces resulted in some vehicle owners being able to take advantage of positive equity on their loans and even their leases. But as we shifted toward an environment with diminished used car values and rising interest rates over the past few months, consumers have become less insulated from those riskier loan decisions, and we are only seeing the tip of the negative equity iceberg."

Edmunds advises owners to pay closer attention to their vehicle's value to avoid being surprised by negative equity situations.