The Opportunity Cost of Car Payments: How Long-Term Investing Outpaces Vehicle Ownership

In an era where the average monthly car payment for a new vehicle in the U.S. has surged to $748 in Q3 2025, the financial implications of vehicle ownership extend far beyond the sticker price. For investors attuned to the power of compounding, these payments represent a stark opportunity cost-a sum that, if redirected into the stock market, could generate substantial wealth over decades. This analysis examines how the bifurcated U.S. auto market, coupled with historically robust equity returns, underscores the case for prioritizing capital preservation and growth over depreciating assets.

The Rising Burden of Car Payments

The average new-vehicle transaction price now exceeds $42,332, with loan terms stretching to 69 months and interest rates averaging 6.56%. For used vehicles, the average payment of $532 reflects a lower price point ($27,128) but higher interest rates (11.40%) and shorter loan terms (67 months). These figures highlight a market where buyers are locked into longer, costlier commitments. The bifurcation of the market-between price-conscious buyers opting for older used cars and premium buyers favoring new vehicles-has further entrenched these trends. For instance, under-$30,000 used-vehicle sales grew 73% year-over-year, with nearly half of these listings featuring cars seven years or older. Meanwhile, luxury new-vehicle sales thrived, particularly for models priced above $70,000.

The Opportunity Cost of Deferred Investment

Consider the alternative: redirecting these monthly payments into the stock market. Over the past 30 years, the S&P 500 has delivered an average annual return of 9%, or 6.3% after inflation. Compounding this return transforms even modest, consistent contributions into significant wealth. For example, investing the average new-car payment of $748 monthly at a 9% annual return would yield approximately $1.1 million over 30 years. By contrast, the same amount spent on a car would leave the owner with a vehicle worth a fraction of its original price, assuming no resale value.

This disparity is magnified by the structure of auto loans. With interest rates for new vehicles at 6.56%, borrowers are effectively paying 6.56% to fund an asset that depreciates by 20% in the first year and 60% over five years. In contrast, the stock market's long-term returns not only outpace these borrowing costs but also offer diversification and liquidity.

Market Dynamics and Policy Shifts

Recent policy changes, such as the expiration of the federal EV tax credit at the end of September 2025, have further skewed buyer behavior. New EV sales surged 47% quarter-over-quarter in Q3 2025 as buyers rushed to qualify for incentives, while used EVs outperformed other powertrains, selling in an average of 34 days compared to 41 days for gas-powered vehicles. Yet these short-term gains in the auto sector pale against the compounding potential of equities.

The used-vehicle market, meanwhile, remains tight, with inventory down 0.6% year-over-year and prices up 2.8%. While 3-year-old vehicles command an average price of $31,067-a 5% increase from 2024-these vehicles lingered on dealer lots for 41 days, up from 37 in the prior year. This tightening market underscores the growing mismatch between buyer demand and the returns achievable through alternative investments.

Strategic Implications for Investors

For individuals prioritizing long-term wealth creation, the data suggests a clear imperative: minimize car-related outlays to free capital for compounding. Strategies such as purchasing older used vehicles, leasing, or opting for shorter loan terms can reduce monthly payments and interest costs. For instance, the under-$30,000 used-vehicle segment-a category dominated by high-mileage cars-offers a 73% year-over-year sales increase, reflecting a shift toward frugality. Redirecting even a portion of these savings into equities could amplify financial outcomes.

Moreover, the average American spends nearly 20% of their income on transportation, a category that could be restructured to align with investment goals. Given the S&P 500's historical resilience-even through crises like the 2008 financial collapse-investors are well-positioned to outperform the depreciation curve inherent in vehicle ownership.

Conclusion

The opportunity cost of car payments is not merely a financial calculation but a philosophical one. In a world where $748 monthly payments could grow into a seven-figure portfolio, the decision to allocate capital to depreciating assets demands scrutiny. As the U.S. auto market continues to bifurcate and interest rates remain elevated, investors must weigh the immediate utility of vehicle ownership against the exponential power of compounding. The data is unequivocal: over the long term, the stock market's returns dwarf the value retained by even the most carefully chosen car.