Car buyers tend to be more focused on monthly payments versus the overall cost, so many buyers are turning to longer loan terms to manage monthly payments. A record 20% of auto loan originations in Q1 2025 were for 84-month terms, with the average amount financed climbing to $41,473, according to Edmunds. While these extended loan terms may reduce monthly payments in the short term, they introduce significant financial risks. Consumers are often committing to loans that may take years to pay off, only to find themselves in a situation of negative equity.

A traditional 60-month loan typically reaches breakeven in about three years, but an 84-month loan can take significantly longer to reach the same point, especially since buyers typically keep their vehicles for only 33-35 months. This mismatch can result in buyers owing more than the vehicle is worth long before the loan is fully paid off, potentially trapping them in long-term debt.

Increasing Insurance Premiums: A Growing Burden for Car Buyers

But it is not just car prices that are creating challenges for buyers – they are also facing a growing burden with higher insurance premiums. According to NPR, as vehicle repair costs continue to rise, insurance premiums will likely follow suit. When insurers pay more for parts and repairs, they inevitably pass those costs on to consumers, resulting in higher premiums. For buyers, this means that their total cost of ownership is significantly increasing, not just for the car, but for maintaining it. Even those with minimal insurance coverage, like liability-only policies, will likely see their premiums rise, as property damage coverage becomes more expensive due to the increased repair costs.

Leasing: The Key to Affordable Car Ownership Amid Higher Prices

Leasing is becoming an increasingly popular option as consumers seek more affordable alternatives in a market marked by rising car prices and insurance. The penetration of new vehicles leased has grown significantly since its post-pandemic low of 18% in 2022, reaching 25% in 2024. While this is still below pre-pandemic levels, the rebound indicates a broader shift toward more cost-effective solutions. According to a May 2025 Credit Union Leasing of America (CULA) survey of consumers who have just leased a vehicle, the affordability of leasing versus a loan was the top consideration for the majority (60%). Meanwhile, 90% of those at the end of their lease said they found leasing a good option versus a loan, with affordability again the reason for the majority. Of those who have made a decision on financing for their next vehicle, 78% say they would choose to lease again, citing lower payments, shorter terms and a desire to stay flexible in uncertain economic conditions.

As lease terms and payments continue to decrease across various risk segments, vehicle leasing is poised to become an even more accessible option to an even wider pool of consumers in the months ahead.

How Credit Unions Can Support Members in This Challenging Market

The current volatility in the car market presents a unique opportunity for credit unions to step in and support their members. With car buyers feeling financially stretched, credit unions can offer affordable car financing solutions to alleviate the strain caused by rising costs, especially given that in 2024, the average monthly lease payments through credit unions were $159 lower than loan payments (based on CULA data and utilizing its average new vehicle finance amount of $40,119 converted to typical new auto loan terms of 6.99% for 72 months).

By offering competitive rates, flexible loan terms and leasing options, credit unions can help their members lower monthly payments, avoid long-term debt and keep their financial goals on track. But it’s not just about offering lower rates, it’s about offering guidance and transparency in a market filled with uncertainty. Credit unions that step up with clear, informed advice will earn their members’ trust.

The surge in U.S. new-vehicle sales is also a factor, as consumers are rushing to purchase vehicles now in anticipation of future price increases due to tariffs and lower inventory levels. Analysts say this inventory drop could drive prices even higher. In such a shifting landscape, credit unions have a powerful opportunity to grow auto finance share, attract new members and stay competitive by offering innovative solutions like leasing that provide significant savings.

This market also presents an opportunity to attract new members. As car payments continue to rise, consumers will seek better deals. Credit unions that offer lower rates, shorter terms and flexible leasing options will stand out as a trustworthy alternative to other financing options.

Turning Challenges Into Growth: The Path Forward for Credit Unions

The ongoing uncertainty in the car market presents challenges, but also significant opportunities. By offering solutions that help members manage rising costs, lower monthly payments and avoid long-term debt, credit unions can both retain current members and attract new ones. This is a chance to make a real difference in people’s financial lives while also growing their auto finance portfolios.

As we look to the future, credit unions that focus on education, flexibility and affordable solutions will be well-positioned to help their members weather the storm of rising car prices, tariffs, insurance costs and interest rates. The road ahead may be uncertain, but with the right approach, credit unions can help their members stay on track.