Auto loan interest rate highest since 2019; average amount financed hits all-time high and more consumers are paying $1,000 monthly, according to latest Edmunds report.
From GAIL KACHADOURIAN HOWE (Automotive News)
Auto loan interest rates soared to their highest levels since 2019 while the average monthly payment for new vehicles passed $700 in the third quarter, according to Edmunds.
Additionally, more than 14 percent of car buyers now have a record-high monthly payment over $1,000.
Edmunds said the average annual percentage rate on financed new vehicles for the third quarter was 5.7 percent — up from 4.3 percent at the same time last year and up from last quarter’s 5 percent.
“Since inventory has been so low due to the microchip shortage, there hasn’t been a lot of need for incentives,” Jessica Caldwell, Edmunds’ executive director of insights, told Automotive News.
The industry is dealing with other supply chain issues, she said, noting Ford Motor Co.’s badging shortage last week.
With prices on the rise, the average amount financed for new vehicles also climbed, to $41,347 — up from $38,315 in third-quarter 2021 and up from second-quarter 2022’s $40,602.
Along with increased APR and average amount financed, the average monthly payment for a new vehicle in the third quarter was more than $700, with 14.3 percent of consumers taking on a record-high monthly payment of more than $1,000, Edmunds said.
The Edmunds report also reveals that automakers’ subsidized interest rates influenced a small increase in loans of 48 months or less.
“People are starting to opt for shorter loan terms because they’re doing the calculations,” which show an overall cost savings in interest paid, Caldwell said.
In the third quarter, 9.3 percent of financed new-car buyers had an average loan term of 48 months or less — up from 4.5 percent in the third quarter of 2020, which saw low interest rates and longer loan terms due to the pandemic.
Caldwell said dealership finance offices can expect some monthly payment shock for a lot of consumers, vs. “just plain old sticker shock.”
“We had lower interest rates for so long, particularly in the new-car market, people became accustomed to it,” she said. “Now, it’s not the case. And even if you are prepared to pay over MSRP, maybe you didn’t factor in ‘this is how much I’m paying in interest now,’ and all of a sudden the monthly payment is over $700, which you didn’t expect.”
Continue reading: https://www.autonews.com/retail/auto-loan-interest-rate-highest-3-years
