Key takeaways
- Over 74 million Americans carry outstanding auto debt
- Average monthly car loan payments have reached $716
- Vehicle financing can significantly reduce mortgage borrowing capacity
For millions of Americans hoping to buy their first home, the biggest obstacle may already be sitting in their driveway.
New research supplied by the Urban Institute and reported by The Washington Post shows that more than 74 million US adults carry auto loan debt, with average monthly payments reaching a record $716.
That amounts to $8,592 annually before insurance, fuel, maintenance and other expenses. While rising mortgage rates have already made homeownership more expensive, car payments are quietly reducing how much prospective buyers can borrow.
The problem is especially significant for households balancing vehicle loans, student debt and housing costs simultaneously.
How a $716 Car Payment Shrinks Your Mortgage Budget
Mortgage lenders typically examine a borrower's debt-to-income ratio (DTI), which compares monthly debt obligations with gross monthly income.
Consider a hypothetical household earning $6,000 before taxes each month.
At a 43% total DTI limit, the household could allocate approximately $2,580 toward mortgage payments and other qualifying debts. A $716 vehicle payment would reduce that amount to $1,864 before accounting for student loans, credit cards or other obligations.
The resulting difference can materially affect the size of a mortgage the household qualifies for.
For perspective, at a hypothetical 7% interest rate over 30 years, $716 in monthly principal and interest supports approximately $108,000 in mortgage principal. Actual borrowing capacity depends on property taxes, insurance, other debts and lender requirements.
This helps explain why even a market with more sellers than buyers does not automatically become affordable.
Why Americans Are Borrowing More to Buy Cars
Vehicle financing has become substantially more expensive over the past five years.
According to Experian's September 2026 analysis, the average monthly payment on newly financed vehicles reached $765 in the second quarter, compared with $542 for used vehicles.
Average new-car loans reached $43,610, reflecting both elevated vehicle prices and the size of purchases consumers are financing.
Meanwhile, more Americans are extending their loan terms to keep payments manageable.
Longer loans can lower immediate monthly obligations but increase the time borrowers remain indebted and may increase total interest costs.
For prospective homeowners, the timing can be particularly damaging. A new six-year car loan taken out shortly before applying for a mortgage can restrict borrowing capacity throughout much of the homebuying process.
That pressure compounds the housing affordability problem, where high property prices and expensive financing have already discouraged buyers.
Car Debt Is Becoming a Long-Term Wealth Problem
The financial consequences extend beyond mortgage qualification.
The Urban Institute data also found that more than 36 million Americans carry student loan debt, with average monthly payments of $316.
For households managing both obligations, combined payments can exceed $1,000 monthly, reducing money available for emergency savings or a down payment.
Some borrowers may improve their position by refinancing, reducing outstanding debt or purchasing a less expensive vehicle. Experian found that consumers refinancing auto loans in the second quarter saved an average of $83 monthly, although extending repayment terms can increase total interest.
The difficulty is that homebuyers are also confronting elevated housing borrowing costs and a market where existing owners remain reluctant to surrender cheaper mortgages.
Even the financial system behind mortgage lending depends on borrowers demonstrating their ability to sustain regular payments.
