15.7 Percent Of New Car Buyers In Q4 2022 Paid Over $1,000 A Month
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The rise in auto loan interest rates is driving an increase in average monthly payment levels, with one study indicating that the share of new car buyers who paid more than $1,000 a month increased to 15.7 percent in Q4 of the 2022 calendar year.
According to a recent report from Edmunds, nearly 16 percent of consumers who financed a new vehicle signed on for a monthly payment of $1,000 or more, the highest rate yet, as compared to 10.5 percent of consumers in Q4 of 2021, and 6.7 percent of consumers in Q4 of 2020.
Meanwhile, 5.4 percent of consumers who financed a used vehicle in Q4 of 2022 signed on for a monthly payment of $1,000 or more, also a record, as compared to 3.9 percent of consumers in Q4 of 2021 and 1.5 percent of consumers in Q4 of 2020.
Although new and used car prices began to cool off last quarter after record highs, the recent rise in interest rates has resulted in an even bigger barrier for consumers who rely on financing. Additionally, more car buyers are choosing to purchase rather than lease, with data indicating new-vehicle lease penetration dropping to 16 percent in Q4 of 2022, as compared to 29 percent in Q4 of 2019. Luxury new-vehicle lease penetration dropped to 26 percent in Q4 of 2022, as compared to 53 percent in Q4 of 2019.
“Although the last quarter of the year typically skews toward luxury vehicle purchases, this near-record percentage of vehicles that are being purchased rather than leased reflect tougher market conditions far more than affluent consumers shelling out a bit more than usual to treat themselves over the holiday season,” says Edmunds’ director of insights, Ivan Drury.
Analysts indicate that higher vehicle financing costs and cooling used car values could result in negative equity for car buyers down the road. Per the recent Edmunds analysis, 17.4 percent of new vehicle sales with a trade-in had negative equity in Q4 of 2022, as compared to 14.9 percent in Q4 of 2021 and 31.5 percent in Q4 of 2020. The average amount owed on upside-down loans increased to $5,341 in Q4 of 2022, as compared to $4,141 in Q4 of 2021 and $5,059 in Q4 of 2020.
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While the 1000/mo payment is vomit inducing, the real question is what about the other 85% of sales? Something tells me that stats for payments that are 900, 800, 700, etc aren’t much better.
I suspect that well over half of the sales are a 600/mo payment or higher.
With more and more children being raised in broken homes and not being provided with guidance, obedience and everyday life lessons, this is only going to get worse.
Not knowing how to handle personal finances can be a death sentence. My parents taught me how to save money and make smart purchases from the time that I was in grade school. Our society has truly regressed by leaps and bounds over the past ~25-30 years.
Paying >$1,000/month for a vehicle because you don’t have any money to put down, since you decided to make imbecilic decisions with your bank account? Oy vey…
NUTS!! Absolutely crazy.
When I purchased my 2021 Malibu, I was able to still get the 0% financing for only 48 months. I didn’t want to put too much down due to the 0%, so I just put a little down and my payment is $475/month. And I thought (still feel) that was bad enough.
Here’s my next thought on this massive payments thing. Are these people actually thinking ahead about things like tax, registration renewals, insurance and so on? I know the tags are getting more expensive in all states, but here on the nutty west-coast, I just got my renewal for the Malibu and it’s $413.00!! I’m about ready to start walking.
So many jumping to the conclusion that people with these Payments can’t afford them. There’s insufficient data to support such critical judgement.
Most buying a new car right now are likely individuals who can afford it and simply don’t want to put off the purchase. Instead of paying cash, they’re being offered a low interest rate. These individuals understand that they’re making a high return on their money and it would be foolish to pull their investment out now if they could get a 2-3% interest rate. Hypothetical scenario is they’re making 10% return while paying 3% interest. Making 7% return to have that high payment. Of source they’ll take the high monthly payment versus paying cash.
Stop making this such a critical situation. And if someone can’t afford such a payment, it’s their choice and they’ll have to face the consequences if they overextend.
GMC Fan: With my job in the fleet department, I end up delivering cars all over southern California for our brokers. Between those and some other in-dealership deals I see, I can tell you that often (but not always) the people who make a lot of money have bad credit and/or debt up the behind. My opinion on this is that they do make a lot of money (I see the numbers), but they then spend that much more. Often that puts them in a bad situation.
That is the American Way right there!
I don’t know how many made 10% in investments over the past 12 months. It’s more likely the loans have a higher interest rate than the investments. The S&P 500 declined by more than 18% – the worst since 2008. It’s no surprise that people are reporting hard times. I’ve had complete strangers complain to me about their wages last year and one individual informed me that many are taking out loans or remortgaging because of the poor economy. Besides, if someone wants to spend that much on a depreciating asset, they should be able to afford it in cash and demand additional discounts.
GMC fan..
I think you are the one that jump to some funny conclusion, investors making 10% return, yes, it’s doable (have you try selling premium using equity options?) but certainly not a common return out there, and to those that can make that kind of return, the last thing on their mind is blowing 1000.00 a month on depreciated assets.
It’s highly unlikely average investors made 10% last year. Take 8% inflation into account and the hypothetical makes less sense.
GMC fan: You are uninformed. The S&P ended the year down19.4% and the Nasdaq was down 33.1 % for the year. If people are buying cars with a credit its because they don’t want to sell their stocks at a loss!
P.S Bonds are down too
If they REALLY could afford the vehicle they would have paid cash or a LARGE down payment not making 1K payments per month. You obviously failed economics and/or don’t know what your talking about.
Starting to see more and more consumers wanting to reduce their payments. The problem is negative equity doesn’t reduce payments and a lot of dealers are in a negative equity situation themselves, in the used car department. Probably 75% of all used car managers will be on the chopping block in the next three to six months. Won’t be long until the floor plan folks start asking for curtailments. Stupid inventory decisions are about to come home to roost. Newbies in the business are about to get an education.
I think it’s ludicrous to go over $750. How these people are blowing past $1000 is unbelievable to me.
Old saying, ‘Expenses rise to meet income’, comes to mind. Reminds me of housing bubble of early 2000s. Big houses for everyone if they can afford them or not.
Too many nuts out there think they need an HD diesel pickup to commute, get groceries, and impress their friends. They won’t feel so cool when they are eating dog food and trying to get by on Social Security because they didn’t save for retirement instead.
With the mostly cashless society people have no idea what a dollar actually buys, which isn’t much.
Joe B: Very good point. I truly think that by us being so cashless any more that we have lost touch with the “pain” induced by writing that house and/or car payment check every month. When it’s all done electronically now, that pain is less and we become numb to it all.
Everyone just needs to stop buying the new vehicles! Then the prices and interest will come down. But it will take everyone to stop buying vehicles new or used, for 6 months. Boycotting stuff used to work, the problem is now no one will do it. Like self checkouts people use them so they’ve done away with cashiers.
I’m not sure if this counts, but I believe that the truck I ordered won’t be here for another 6 months, so does that count as boycotting? 😂
When repo’s, job losses, layoffs and BK’s spike they will learn the hard way.
It all really starts with the salesperson that just asks “how much can you afford to pay per month” Never mind about how many months it is. I talked with a new Ski-Boat owner how much his payments were, he told me $xxx, then said it was for 15 years, this thing won’t be worth anything in 10 years. Its all about how much stuff you can cram into a 4 or 5 car garage today…..
I ordered a new 2023 Chevy Bolt EV (not EUV) a couple months ago thinking that it may take 6 months to come in. Well, my guy told me yesterday the car will be at the dealership around the 9th. So I asked him what deals (lower interest rates or lease, etc) were available. He just laughed and being in the business, I kind of knew he would. If I lease, the money factor comes out to about 13% interest rate! The best finance rate I can get is around 6.2% with perfect credit and a FICO score over 820. I say all this because it looks as if going from my 2021 Malibu to this Bolt EV would increase my monthly payment from $475/month (48 month loan at 0%) to over $610/month with another 48 month loan. The only way to keep my payment down would be to put a lot of cash down or finance for a longer term.
My point in all this is to show how easy it is to bump yourself on payment when you don’t pay attention. This is how we get to a point where so many people have $800 to $1,200 a month payments! In my case, I’m most likely going to pass on the Bolt and keep my Malibu. There’s no real way to justify the switch at this point. However, I have a call with my tax accountant later today and she may be able to help me here. I know one thing for sure: when I get off the phone with her, I’ll know for certain if I’m taking the Bolt or not. Not enough buyers do this amount of homework before signing the papers any more.
Just an update after speaking with my tax professional: First, not a lot of great answers because they are still waiting on the FEDS to get everything out. As we already know, that will be March this year. Second, she advised me to NOT lease because I would lose all the $3,750 or $7,500 in total. By purchasing, I can get the tax break on my 2023 taxes. She is not clear if that will be in the form of a tax “refund” putting the full amount back into my pocket or it will just reduce any tax burden. Since I normally get a refund, it’s not clear if/how it will help. Another option would be for me to change my exemptions to have less tax taken from my pay checks. Still looking into this one.
Sorry to say, not much has changed from before my call with her. My next step will be to wait for the car to arrive and look hard at the numbers. I’m not convinced the purchase and taking the tax credit on my 2023 taxes will benefit me much, so I’m going to look at both the lease and purchase. If the numbers work for me without putting very much down, I may get it. Otherwise, I’m sticking with my beloved Malibu for a while more.