A Record Number Of New Car Buyers Are Paying More Than $1,000 A Month
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While inventory levels continue growing, soaring auto loan interest rates are tapping the brakes on new car sales. The expense of financing a vehicle purchase is reaching all-time historical highs.
According to research by Edmunds, 16.8 percent of new car buyers in Q1 2023 committed to paying $1,000 monthly or higher on their loan. This represents a significant increase from the already elevated 15.7 percent of buyers taking on such a payment in Q4 2022.
The annual percentage rate or APR of new car loans also reached 7 percent, exceeding all APRs seen since Q1 2008. Average buyers are paying $730 monthly in Q1 2023, up approximately 11.3 percent year-over-year.
Q1 down payments on new vehicles also achieved previously unseen highs, surging 14.4 percent above Q1 2022 levels to $6,956. Edmunds notes that the combination of record-high monthly payments and large down payments is driving many new car buyers to seek the longest possible loan terms.
Opting for a longer loan term reduces monthly payments, but sharply increases APR and total interest payments over the life of the loan. Customers signed up for loans with a 67-month term or longer for 67.3 percent of Q1 2023 new car purchases. 30.5 percent of loans had terms longer than 72 months, while only 4.7 percent had a 36-month term or shorter.
The executive director of insights at Edmunds, Jessica Caldwell, remarked that “since inventory levels are improving, interest rates are now topping the list of the greatest obstacles that automakers will be facing in 2023 to move metal.”
Caldwell went on to note dealerships or automakers could turn this situation to their advantage by being the first to offer significant incentives targeting interest rates. She described such incentives as “a powerful marketing tool that would enable sellers to tap into the significant pent-up demand” resulting from limited new car inventory in the wake of COVID-19 and semiconductor chip shortages.
For now, most incentives are being offered in combination with short-term automotive loans, with 36-month or 48-month terms. These terms also have the highest average monthly payments and down payments up to three times the amount of a 73- to 84-month loan down payment. These accompanying costs have been limiting the positive effect of most recent incentives on sales.
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At a few years past 40, I have not financed a vehicle in ~10 years. The prices of vehicles have increased exponentially over the past 20 years; therefore, payments and terms have skyrocketed. I suppose if these people never want to retire, go ahead and finance a vehicle that resembles a mortgage. To each their own and best of luck.
I learned my lesson when someone turned left in front of my new-to-me 1998 olds aurora and wrote it off. I took the $13000 insurance check to the bank and walked out with $2700. Somehow that actually physically hurt more than the airbags going off. I have been fortunate to pay cash for my vehicles since. They haven’t all been reliable or pretty but I OWNED them. Thank-you to everyone who buys new cars and supplies the used car market. I bought one new car (a GM) in my life and I will avoid that experience at all costs.
MY loaded ’20 LTZ 4wd had a MSRP under 58K. Now the LTZ 4wd STARTS at over 59K. Thanks for the Jimmy Carter inflation, Brandon!
I had not made a car payment since 1994 – bought new in 1999, 2005, and 2014. paid cash. Last year my Trailblazer landed at the dealership and my intention was to pay cash. However, to get $750 rebate, I had to do the GM Financing. Qualified for $1500 a month, 0% interest, 4 years. Could have bought 2 vehicles with that. I decided to do 50% down payment, with the intention to pay it off early – requirement was to make at least 4 payments. The business manager ignored my request made to the salesman that we do 50% down – at closing it was written up for the full amount. I made him change it, so we had to wait while they redid the paperwork. Have already paid off 50% of the amount financed – next payment is not due for a year now. I make triple payments every few months, and it is all I can do to just pay if off the next time I make a payment.
I started paying cash in 2009.
Purchased 2001 Z06 and 2010 GRANDSPORT still have both of them. Financed both at 0% for 60 months through GMAC. I will take their money all day long for free!
Depends on the deal, sometimes the price is better writing the check, compared to 60 days same as cash at MSRP.
60 months
I never even had a house payment that high!
Around 1970-ish, for the first time car loans were available for 48 months from the standard 36 month. You thought the world was coming to an end.