More car buyers than ever are making monthly payments of at least $1,000 — a result of rising auto loan interest rates and high prices.
In the fourth quarter of 2022, 15.7% of Americans who financed a new vehicle purchase committed to monthly payments of $1,000 or more, according to a new report from automotive research firm Edmunds. That compares to 10.5% a year ago and 6.7% two years ago.
Part of the reason for these high monthly payments is that new car prices are at a record high, as of the latest update from Kelley Blue Book. Buyers paid an average of $48,681 for new vehicles in November, which is a $2,250 increase over the prior year.
Supply shortages and inflation have lifted car prices, and average costs are also rising due to a larger share of Americans opting to buy expensive luxury vehicles.
With non-luxury cars, prices are actually dropping for some brands, and buyers aren’t paying as much above MSRP (the sticker price) as they were in the summer, experts say.
Monthly payments, however, rose by even more than car prices in 2022 thanks to auto loan rates, which soared following interest rate hikes from the Federal Reserve as the central bank sought to curtail inflation. Down payments have also risen to record highs: Edmunds reports that the average down payment was $6,780 for new cars and $3,921 for used vehicles in the fourth quarter of 2022, compared to $5,921 and $3,552, respectively, the year before.
Auto loan rates push monthly payments higher
According to Edmunds, the average auto loan interest rate for new financed vehicles was 6.5% in the fourth quarter of 2022, up from 4.1% one year prior.
For used vehicles, average auto loan interest rates increased from 7.4% in the fourth quarter of 2021 to 10% in the fourth quarter of 2022.
As with new vehicle purchases, a record share of used vehicle buyers, 5.4%, also committed to monthly payments of at least $1,000 in the fourth quarter last year, according to Edmunds. That’s an increase from 3.9% a year ago and 1.5% two years ago.
Ivan Drury, Edmunds' director of insights, says car buyers will continue to face affordability challenges because of interest rates even if prices drop somewhat.
“Just as new and used car prices finally started to cool off in Q4, rapidly rising interest rates created an even greater barrier to entry for consumers who rely on financing — which is the vast majority of car shoppers,” Drury says.