What is the average car payment?
What is the average car payment?
«Most people were used to very low rates but now you must be aware of what your interest rate is,» he told CBS MoneyWatch.
Stocks slide as strong economic reports fuel fears surrounding inflation, interest rates 04:16 As the Federal Reserve continues to raise interest rates in its battle against inflation, rates on auto loans have spiked, Drury said. The average rate for both new and used automobiles is 6.5% and 10%, respectively, compared with 4.1% and 7.4% a year ago, Edmunds noted.
To be sure, the majority of drivers aren’t paying four figures for their auto loans, but average monthly payment data from Edmunds suggests that many are headed in that direction. The average car note at the end of 2022 was $717 for new cars and $563 for used, compared with $525 and $389, respectively, five years prior.
Buying a car became a more costly proposition in 2022 as data from Edmunds and Kelley Blue Book revealed Americans paid record prices for a set of wheels, whether new or used. Prices soared in part because automakers couldn’t pump out enough high-demand models, like electric vehicles and fully loaded SUVs. Shortages in semiconductor chips and other car parts hobbled the auto industry last year, causing sales to drop 8% from 2021 figures. Automakers reported this week that they sold 13.9 million cars, trucks, SUVs and vans last year. Analysts now expect auto sales to grow by roughly 1 million to around 14.8 million this year as demand remains strong.
Chip shortage amid pandemic
The chip shortage began in spring 2020, when automakers were forced to close factories due to the coronavirus pandemic . Chip makers shifted production to digital devices to feed a boom in computer and gaming sales as people were stuck indoors. When auto plants eventually restarted, chip makers weren’t making as many semiconductors for automobiles.
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Drury said one way to get a lower auto loan rate on a new car is by purchasing the vehicle automakers want to sell the most. Dealerships slap a slightly lower rate on the makes and models they’re particularly interested in moving, he said.
Shoppers looking for a bargain on a used car should get a certified pre-owned vehicle because «they’re the only place on the market you’ll find incentivized interest rates,» Drury said. Certified pre-owned cars are typically low-mileage, somewhat new vehicles that drivers return from a lease. That said, they’re tougher to find these days because consumers and rental car companies aren’t returning leased cars to dealerships as often as they did in years past, Drury said.
Still, if you can find something certified pre-owned, dealerships offer a much lower rate because «they see it as a gateway to buying a new car from them.»
—With reporting by the Associated Press.
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Khristopher J. Brooks is a reporter for CBS MoneyWatch covering business, consumer and financial stories that range from economic inequality and housing issues to bankruptcies and the business of sports.
First published on January 6, 2023 / 10:37 AM
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Car Loans Hit 7% Average, With Average Monthly Payment $730
If you’re in the market for a new vehicle, be prepared for some vehicle financing shock. Edmunds.com’s first quarter data shows the average new vehicle financing interest rate is at its highest level since 2008 — at 7% — which is driving a record share of $1,000+ monthly car payments. The average car payment is a record high $730 a month in Q1, up from $656 year-over-year.
Car Financing Increasingly Out Of Reach
Edmunds experts say financing a new vehicle purchase continues to grow increasingly out of reach for many consumers due to high interest rates, despite increasing inventory. Just check out these stats:
- The average annual percentage rate (APR) on new financed vehicles in Q1 2023 climbed to 7%, compared to 4.4% in Q1 2022, which is the highest level Edmunds has on record since Q1 2008. However, Edmunds analysts note that March marked the first time after 14 consecutive months of increases that the average new-vehicle APR stayed flat (at 7%), which they attribute to a moderate increase in subsidized financing by automakers.
- The average monthly payment for new vehicles hit a record high of $730 in Q1 2023, compared to $656 in Q1 2022.
- 16.8% of consumers who financed a new vehicle in Q1 2023 committed to a monthly payment of $1,000 or more — a new all-time high according to Edmunds — compared to 10.3% in Q1 2022 and 6.2% in Q1 2021.
- The average down payment for a new vehicle is up too — climbing to a record high of $6,956 in Q1 2023, compared to $6,083 in Q1 2022.
«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,» said Jessica Caldwell, Edmunds’ executive director of insights. «But with major challenges come great opportunities: Since interest rates are at the forefront of consumers’ minds, any automaker or dealer that can advertise incentives related specifically to interest rates will likely get more attention. This could be a powerful marketing tool that would enable sellers to tap into the significant pent-up demand that has been building over the past few years and convert that demand into actual sales.»
Edmunds says its analysts took a closer look at financed new vehicle purchases in Q1 2023 and calculated the average monthly payment, amount financed, APR, down payment and total interest paid — in each case based on loan term lengths. You can check out the data in the tables below.
Edmunds experts note that these figures highlight the big contrast between the consumers who are able to take advantage of lower APR offers and those who can’t. Although quarterly figures appear to reflect that the average loan term has remained static at around 70 months, Edmunds analysts say term lengths aren’t the full story — which is that more car shoppers are being pushed to the extreme ends of the finance terms spectrum. In the first quarter, Edmunds data shows that 12.3% of consumers opted for 36- or 48-month loan terms, which is the highest Edmunds has on record since back in Q4 2009, while a majority of consumers are extending loan terms out as much as possible to make buying a car more affordable.
Q1 2023 New-Car Finance Data Broken Out by Loan Term Length
Paid on Loan
Monthly car payments have crossed a record $700. What that means
A motorist drives between flowers along the Angeles Crest Highway in the Angeles National Forest northwest of La Canada, Calif.
David McNew/Getty Images
Cars have long had their own special place in America.
The wide open roads, the wind in your hair, the feeling of freedom when you drive. Cars have been celebrated in movies and eternalized in songs for evoking all that.
And right now, that feeling of freedom comes with a pretty hefty price tag. The average monthly car payment crossed $700 a month earlier this year, the highest on record, according to Cox Automotive/Moody’s Analytics.
«I joke with people that every new car purchase is a luxury car purchase, I don’t care what you’re buying,» says Ivan Drury, senior manager of insights at the car buying expert Edmunds.
However, cars aren’t just a symbol of freedom.
In fact, they play an essential role in the economy. People rely on cars to get to work — 3 out of 4 Americans commute to work by car. Then there’s school drop-offs, doctors appointments, grocery shopping and more.
And yet, for more and more Americans owning a car is becoming unaffordable.
«Unfortunately for the segment of the population that probably needs it the most, it’s getting more and more out of reach,» Drury notes.
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Indeed, that high dollar figure doesn’t even account for insurance or parking for those who have to pay for it. Not to mention gas prices that crossed $5 a gallon recently and are still hovering near these record levels.
There’s also no end in sight in an era when interest rates are rising and the cost of borrowing will likely go up even more.
What’s causing prices to spike?
The primary reason cars have gotten so pricey can be traced back to the computer chip shortage that started during the pandemic.
When car sales dropped dramatically during the early parts of the lockdown, auto manufacturers slashed orders for the chips.
Around the same time, as schools and work went online, people bought additional laptops, iPads, TVs, video games and other electronic goods for their home. So chip manufacturers shifted their production to serve those companies.
Automakers are making more expensive cars
This was soon followed by other big shifts in the economy. People started moving out of crowded cities into suburban locations, and suddenly demand for cars skyrocketed.
Auto manufacturers were caught flatfooted and unable to make enough cars because they didn’t have enough microchips, which play a big role in today’s cars, controlling everything from windows to the navigation screen to even passenger seat sensors.
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With a limited supply of chips, automakers cut back and made fewer cars. They decided to put their chips into making bigger, more expensive vehicles — SUVs loaded with features — to get more bang for their buck.
An all-new 2018 Ford Expedition SUV goes through the assembly line at the Ford Kentucky Truck Plant. Bill Pugliano/Getty Images hide caption
Bill Pugliano/Getty Images
An all-new 2018 Ford Expedition SUV goes through the assembly line at the Ford Kentucky Truck Plant.
Bill Pugliano/Getty Images
That also means that automakers have been making fewer compact cars and sedans, the more affordable vehicles.
The average cost of a new car has topped $47,000
The result is that prices have climbed to astronomical levels. The average cost of a new car is hovering at the highest level on record, topping $47,000 a pop.
Drury says get used to these prices: «We’re not going to see a sudden drop-off in price anytime soon, because there doesn’t seem to be any resolution for the chip crisis.»
And used cars? Forget it. They’re just as unaffordable
Those who have sought respite by buying used cars are also facing sticker shock.
Used car prices have shot up even more dramatically than new car prices, up 16.1% from a year ago compared to a 12.6% jump in new car prices.
Johnny Navarro experienced that sticker shock firsthand after a recent car accident. No one was hurt, but his car was totaled. When he went to the dealership, he found monthly payments had doubled for cars he’d looked at only a few years earlier.
Johnny Navarro sits on the hood of his recently purchased 2014 Lexus. Johnny Navarro hide caption
Johnny Navarro sits on the hood of his recently purchased 2014 Lexus.
«To see it jump from like $300 to $600 for a Corolla or Civic was like, I should be driving like a Mustang for that much money, you know?» Navarro said incredulously.
But people still love their cars
After a lot of shopping, Navarro found a used Lexus online. His car payment came out to $580 a month, over $200 more per month than he used to pay. That’s before adding in his insurance bill and parking fees in downtown Los Angeles, where he lives.
«I’m definitely gonna have to probably pick up a shift or two more a week,» Navarro says, referring to his job as a server at a restaurant in Santa Monica, Calif. Driving cuts his hourlong commute in half, but it’s not the only reason he got the car.
«I just like to ride in my car with friends and listen to music. I actually have a carpool karaoke microphone,» he says. «That’s always really fun.»
Navarro is like a lot of Americans — he loves his car. For as long as he can afford it, he’s going to own one.