5 reasons why a $1,000 car payment is a bad idea

Key Points:

• Over 20% of new car buyers now make monthly payments of $1,000 or more, with the average new car payment reaching $787 in the third quarter of 2026, reflecting larger loan amounts and longer terms.
• Financial experts warn that a $1,000 car payment may be unwise since cars are depreciating assets, losing significant value over time, unlike real estate which typically appreciates.
• The common 20/4/10 rule for car buying—20% down payment, loan term of four years or less, and monthly car expenses under 10% of income—is increasingly difficult to follow given current loan terms averaging over five years.
• Making a $1,000 car payment can limit financial flexibility, reducing the ability to save, invest, or cover unexpected expenses, and may increase the risk of being "underwater" on the loan if the car’s value falls below the loan balance.
• Large car payments can negatively impact debt-to-income ratios, potentially hindering the ability to qualify for other loans, such as mortgages, by increasing ongoing financial obligations.