Zero-percent car financing, which had been available on a significant fraction of passenger vehicle purchases during the height of the COVID-19 pandemic, continues to shrink rapidly in Q3 2023 according to the latest available data.
Analysts at Edmunds say that the trend of dwindling zero-percent car financing is matched by record increases in new-vehicle payments, making it steadily more difficult for consumers to afford transport.
According to the data, zero-percent financing was most commonly available to new-vehicle buyers in Q2 2020, the same quarter when COVID-19 arrived in the U.S. and began spreading rapidly. At that time, around a quarter of vehicle purchasers, or 24.2 percent, bought cars using a zero-percent offer.
In the three years since then, this financing option has become extremely rare. One of Edmunds’ insight directors, Ivan Drury, remarked that “zero-percent financing commercials might still be airing to draw shopper attention, but the reality is those deals are all but gone for the average car shopper.”
Only about 1.1 percent of vehicle sales in Q3 2023 involved zero-percent car financing, with the percentage continuing to drop.
Far from enjoying such attractive terms, most vehicle purchasers are paying what are statistically shown to be among the highest financing rates in history. The biggest slice of consumers is currently paying 7.9 percent annually on their vehicles. The average APR is 7.4 percent, and “spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” per Jessica Caldwell, another Edmunds insight director.
Car financing payments are setting multiple records for the highest rates ever. The average monthly new-vehicle payment stands at $736, the highest average on record, with 17.5 percent of vehicle purchasers shelling out more than $1,000 per month, dethroning last quarter’s record of 17.1 percent almost as soon as it was made.
Financing rates appear likely to climb higher yet during the remaining months of 2023 and perhaps beyond. The Federal Reserve may boost interest rates to help stave off inflation. Additionally, the UAW strike slowed production, reduced inventory and could potentially drive new-vehicle prices higher, just when recovering production seemed likely to normalize prices.
The effects of the Stand Up Strike could influence automotive pricing and vehicle availability for some time to come, despite GM and the UAW coming to a tentative accord.