The rise in average monthly car payments is partly due to interest rate hikes from the Federal Reserve and ongoing labor strikes.
10/09/2023 3:10 P.M.
2 minute read
A new study from Edmunds released last week reveals the average car payment for new vehicles has hit an all-time high, exceeding $700 per month.
This new surge in payment rates is attributed to a series of interest rate hikes implemented since March 2022 by the Federal Reserve to curb inflation. During the third quarter of 2023, the average auto loan interest rate for new vehicles climbed to 7.4%, a level not seen since 2007. This increase from the previous year’s average of 5.7% has translated into a noticeable rise in monthly car payments. Additionally, according to the Edmunds study, the average new car payment in the third quarter stood at $736 per month, a $33 increase from the previous year’s average.
Jessica Caldwell, head of insights at Edmunds, emphasized that high interest rates are the primary obstacle right now.
“Spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” Caldwell said. “Looking ahead, the ongoing UAW [United Auto Workers] strike could wipe out any inroads made on inventory and the return of incentives, further elevating pricing, at least among Detroit automakers.”
While the inventory of new vehicles has improved slightly in the past year, giving buyers some negotiating power, higher financing costs have substantially eroded vehicle affordability in terms of monthly payments, according to the report.
For example, the average price of a new car remained relatively flat at $48,451 in August 2023 compared to the previous year. However, prospective buyers could end up paying thousands more in interest if they secure a new car loan today compared to a year ago.
In contrast, average used car payments increased by just $2 over the past year, according to Edmunds. This marginal increase can be attributed to reduced demand caused by high financing costs. Additionally, the average used auto loan rate hit 11.2% in the third quarter, a notable rise from 9% a year ago.
One factor contributing to the challenges in the used car market is ongoing inventory issues, according to an article from Money.com. The pandemic-induced supply shortages have resulted in a scarcity of 1- to 3-year-old used cars, amounting to 28% less supply compared to 2019. Consequently, the prices of lightly used vehicles have surged, with the average price of a 3-year-old vehicle reaching $32,493, a significant increase from $23,048 in 2019.
Remember, subscribe to ACA Daily and Member Alerts under your My ACA profile when logged in to acainternational.org to receive updates on the ACA Huddle.