Honestly, if you thought 2026 was going to be the year we finally got a break at the car dealership, I’ve got some bad news. It is mid-January, and the latest auto finance industry news is making one thing very clear: the "math" of buying a car is still broken for most of us.
We’re seeing this weird, frustrating split in the market. On one hand, the Federal Reserve actually cut rates at the end of 2025, which should be a win. But on the other, average car payments are still hovering around $745 for new cars and over $520 for used ones. If you’re looking at your bank account and wondering why your "affordable" sedan now costs as much as a small mortgage, you aren’t alone.
The Negative Equity Trap is Getting Real
One of the most alarming bits of auto finance industry news right now is the "underwater" crisis. According to new data from Edmunds, nearly 30% of people trading in their cars are carrying negative equity.
That basically means they owe more on the loan than the car is actually worth.
It’s a debt trap.
We are talking about an average of $6,064 in negative equity. But for about 27% of those buyers, the "gap" is over $10,000. Imagine rolling ten grand of old debt into a new $50,000 loan at 9% interest. It’s financial suicide, yet thousands of people are doing it every week just to keep a working set of wheels.
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Why the 2025 rate cuts didn't fix everything
You'd think lower Fed rates would mean cheaper loans. Not quite.
Lenders are still spooked. While the federal funds rate sits around 3.50% to 3.75%, banks are padding their margins because they're worried about defaults. Cox Automotive’s latest data shows new car loan rates are still averaging 9.62%. That is a far cry from the 3% or 4% "good old days" we all remember from a few years back.
A Massive Shift in EV Financing
If you were planning on using a federal tax credit to swing a new EV this year, I hope you bought it before last September. The "One Big Beautiful Bill" (OBBBA) effectively killed the $7,500 credit for most major brands like Tesla, Ford, and GM as of September 30, 2025.
Now, the only way to get a credit in 2026 is if you buy from a "small" manufacturer that hasn't hit the 200,000-vehicle cap yet—think Rivian or Lucid.
This has caused a total nose-dive in new EV sales velocity.
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But there’s a silver lining for used buyers. Because those credits are gone and lease returns are flooding the lots, used EV prices are finally starting to tank. CarEdge reports that used EV prices dropped nearly 3% just in the last couple of months. If you can handle the battery range of a 3-year-old Model 3, you might actually find a "deal" for the first time in years.
The rise of the 90-month loan
This is the part that genuinely scares me. To make these insane prices "affordable," lenders are stretching terms to 84 or even 90 months. TransUnion recently pointed out that the average effective loan term has hit 7.5 years.
Seven. Years.
Think about what you were doing seven years ago. Now imagine still paying $800 a month for the car you bought back then. By the time you finish that loan, the car will likely be out of warranty and worth a fraction of the remaining balance. It’s a cycle that keeps people locked into a "forever payment."
Credit Score is Now Everything
The "K-shaped" recovery is hitting the auto finance industry news cycle hard. If you have a 780+ credit score, you’re seeing rates around 4.8% to 6.5%. You’re doing okay.
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But if you’re in the subprime category?
Brace yourself.
Subprime rates for used cars are hitting 19% to 21% at some lenders. Fitch Ratings reported that subprime delinquency reached 6.65% recently—the highest since the 90s. Lenders are reacting by getting extremely aggressive with repossessions. They aren't waiting 90 days anymore; in many states, if you're 30 days late, that tow truck is already on the way.
What You Should Actually Do Now
Look, the market is messy, but you don't have to be a victim of it. If you need a car in 2026, here is the expert playbook to avoid getting wrecked:
- Avoid the "Rolling Over" Debt: If you are underwater on your current car, do not trade it in. Stay in that car until the equity evens out. Adding $5,000 of old debt to a new loan is how you end up in a financial hole you can't climb out of.
- The 20% Rule is Dead, but the 10% Rule Lives: Don't let your car payment (including insurance) exceed 10% of your take-home pay. With insurance premiums spiking 20% year-over-year, that "affordable" payment becomes unaffordable real fast.
- Shop the "Orphans": 2025 models are still sitting on some lots, and dealers are desperate to move them to make room for 2026 inventory. Look for "stale" units that have been on the lot for 60+ days—that's where the negotiation power is.
- Get Your Own Financing: Never, ever take the first rate the dealer offers you. Go to a credit union first. They currently hold about 65% of the refinancing market because their rates are consistently 2% lower than big banks.
- Check the "Interest Deduction": Under the new OBBBA rules, you might be able to deduct up to $10,000 in interest on a new personal-use vehicle if your income is under certain limits ($100k for singles, $200k for joint filers). Talk to a tax pro before you buy; it could change your "real" monthly cost.
The auto finance industry news isn't all sunshine and rainbows, but being aware of the "90-month trap" and the negative equity crisis gives you a massive advantage. Don't let a slick salesperson talk you into a "monthly payment" you'll still be paying off in 2033. Keep the term under 60 months, get your own financing, and for the love of everything, check your trade-in value on three different sites before you set foot on a lot.
Actionable Next Steps for Buyers
- Check your "Equity Position": Use a tool like Kelley Blue Book or Edmunds to see exactly what your current car is worth versus what you owe.
- Get a Pre-Approval: Visit your local credit union today. A pre-approval letter is the only real shield you have against high dealer markups on interest rates.
- Audit Your Insurance: Before signing for a new car, call your agent with the VIN. In 2026, insurance costs are the "hidden" deal-breaker that many buyers overlook until it's too late.