Average Car Payments Hit a Record High. Here’s What to Know.

Tight supplies of new cars, high prices and rising interest rates are making automobiles increasingly unaffordable for many Americans.

In June, the average transaction price of a new car topped $48,000 for the first time, an increase of almost 13 percent from a year earlier, Kelley Blue Book reported this week.

And because the interest rate on cars is influenced by the benchmark rate set by the Federal Reserve, car payments are ballooning as the Fed raises rates to fight inflation. Most new car purchases are financed, and the average monthly new car payment now hovers around $700, a record high, according to recent industry reports.

“It’s now a combination of higher prices and higher rates,” said Jonathan Smoke, chief economist at Cox Automotive, parent of Kelley Blue Book.

What’s going on? The availability of new vehicles continues to lag behind demand, largely because of a persistent shortage of computer chips used in auto manufacturing. Other global factors are also crimping production, like an earthquake in Japan, continued Covid-19 shutdowns in China and the war in Ukraine. Capacity is unlikely to fully rebound for another year or even two, Mr. Smoke said. “Supply has continued to be an issue.”

The average car price is rising partly because more people are choosing luxury brands, Kelley Blue Book said. A rising share of affluent buyers is paying $1,000 a month or more, according to the auto website Edmunds. But for most consumers, affording a new car is “growing increasingly out of reach,” said Jessica Caldwell, executive director of insights at Edmunds.

Shoppers have options, though. If you own a car that’s functioning well, keep driving it a while longer. “If you can, it’s still a good time to wait” before buying a car, said Ben Preston, an automotive writer with Consumer Reports.

You also might try planning ahead and asking the dealer to order one for you directly from the carmaker, Mr. Preston said. With a so-called factory order, you can choose your exact specifications, rather than settle for, say, a color you hate just because it’s the only vehicle on the lot. You will have to wait at least several months for the car, Mr. Preston said, and you will still pay a “destination” charge for delivery to the dealer — but you will probably minimize dealer markups over the sticker price.

If you need a car right away, some models, like compact cars and compact sport utility vehicles, are selling for about 30 percent less than the average transaction price, Kelley Blue Book said.

Your best bet may be a used car, which had an average monthly payment of $555 in the second three months of this year, Ms. Caldwell of Edmunds said.

But don’t expect big bargains there, either. Used car prices have gone up because of the tight supply in the new-car market. Prices remain higher than they were before the pandemic, although they have recently eased somewhat, according to the online car search site iSeeCars. At least one small used car, the Kia Rio, remains relatively affordable despite price increases, iSeeCars found.

Sedans were once out of favor and easier to find, but that is changing. “There’s not a lot of sedans out there,” said Tyson Jominy, vice president of data and analytics at J.D. Power, with people snapping them up because they get better fuel economy.

Midwestern states generally have better pricing than those on the coasts, so you may be able to save money if you’re willing to travel, Mr. Jominy said. Or you could try using an auto broker to find the car you want in a different state.

With limited inventory of both new and used cars, “you really have to look at both,” Ms. Caldwell said. Prices are higher on new cars than used, but interest rates are typically lower.

If you find a car you like — new or used — at a price you can afford, “buy it immediately,” Ms. Caldwell said. “Do not wait around.”

One silver lining in the car market madness is that trade-in values are strong. Ms. Caldwell said the average trade-in price was almost $24,000 in June, up 12 percent from a year earlier.

Here are some questions and answers about car prices:

How can I get the best interest rate on a car?

Maintaining good credit is important so you can qualify for the lowest interest rate possible, Mr. Smoke said. Some dealers may still offer zero percent financing on new cars, but you’ll typically need a credit score of 760 or higher to qualify, he said. You can get a free credit report at annualcreditreport.com.

Compare loan rates among lenders and get prequalified before car shopping, Mr. Preston of Consumer Reports said, so you can check the rate you secured against the one offered by the dealer.

Can I lower my monthly car payment by taking out a longer-term loan?

Yes, and many consumers are doing that, Edmunds says. More than a third of shoppers who financed a new car in June chose a loan of 73 to 84 months — or about six to seven years. But longer loans typically have higher interest rates, so you’ll pay more over time even though payments are more manageable. And with longer loans, there’s more risk of becoming “upside down,” meaning the car will be worth less than the loan balance. In other words, you could owe money if you have to sell the car before the debt is paid.

What should I do if I’m having trouble making my car payments?

Delinquency rates on consumer debt, including car loans, remain low but increased “modestly” in the first quarter of the year, according to the Federal Reserve Bank of New York. If you are struggling to make payments, contact your lender to discuss options, said Kristen Holt, chief executive of GreenPath Financial Wellness, a nonprofit credit counseling agency that has its headquarters in Detroit: “It’s better to speak to the lender instead of just missing a payment.”

If the problem is short term, you may be able to defer payments while you stabilize your finances. With car values high, you could probably sell your car and pay off the debt, then shop for a more affordable model — if you can find one. For most Americans, commuting to work without a car is difficult, unless you work from home or live near a city with good public transportation. If the rate on your loan is high, you can try refinancing. Ms. Holt said some credit unions offered lower-interest programs.