Car payments just hit a record $787 a month—and 1 in 4 new-car buyers is now signing a 7-year loan

American drivers face a daunting market. The average monthly payment on a financed new car hit a record $787 in the third quarter, according to Edmunds , up from $777 in the second quarter and $756 a year earlier.

Buyers are also borrowing more than ever. The average amount financed climbed to a record $44,664, while the average new vehicle sold for $50,562 in September, per Kelley Blue Book , just $52 shy of the all-time high. Nationwide, auto loan balances reached $1.71 trillion in the second quarter, according to the New York Fed , roughly 56% more than a decade earlier .

For Joseph Yoon, consumer insights analyst at Edmunds, the math is brutally simple: Vehicle prices sit near record highs, and interest rates remain stubbornly elevated, with the average new-car APR holding at 7%.

"Mix those things together and then you get record-high monthly payments," Yoon told Fortune . "Just how the math works out."

The road that led to record car payments

So how exactly did we arrive here? Yoon points to the pandemic as a significant precursor to the state of car sales. When factories shut down and parts ran short, manufacturers faced a choice: build fewer cars, or build the ones with higher margins. They chose the latter.

"Automakers realize, 'Hey, even if we lose a couple million units across the board, if we have high margins, our profits look great,'" Yoon said. "And that's perfectly fine. But as consumers, we drew the short straw, and have to pay for elevated prices."

The result: New vehicles now cost about 30% more than they did six years ago, as Fortune has reported .

For buyers struggling to afford today's prices, the dealership finance office offers a tempting solution: stretch the loan.

Indeed, a record share of new-car buyers decided that a seven-year loan sounded less scary than the alternative. In the third quarter, 25.5% of financed new-car purchases carried terms of 84 months or more, according to Edmunds , up from 23.9% the prior quarter and 21.8% a year earlier. Even so, a record 21.2% of buyers committed to monthly payments of $1,000 or more.

But longer terms carry consequences, some of which aren't immediately obvious.

"The longer you have a loan term, technically the longer you're paying just toward interest, not toward the principal of the loan, especially when the interest rates are so high," Yoon said.

The average amount of interest paid over the life of a new-car loan reached a record $9,938 in the third quarter, up from $9,442 a year earlier, Edmunds found. That increase came even though rates didn't budge; Edmunds attributed it to buyers financing larger amounts over longer periods.