Analysts say more consumers are opting for shorter loan terms to take advantage of limited finance incentives offered by automakers
SANTA MONICA, Calif., Oct. 3, 2022 /PRNewswire/ -- Consumers are digging deeper into their pockets to finance new vehicles, according to the car shopping experts at Edmunds. New data from Edmunds reveals:
The average annual percentage rate (APR) on new financed vehicles in Q3 2022 climbed to 5.7% for the first time since Q3 2019.
The average amount financed for new vehicles hit an all-time record high in Q3 2022, climbing to $41,347 — compared to $40,602 in Q2 2022 and $38,315 in Q3 2021.
The average monthly payment stayed above $700 every month in Q3.
14.3% of consumers who financed a new vehicle purchase in Q3 2022 committed to a monthly payment of $1,000 or more — the highest level that Edmunds has on record — compared to 12.2% in Q2 2022 and 8.3% in Q3 2021.
14.3% of consumers who financed a new vehicle purchase in Q3 2022 committed to a monthly payment of $1,000 or more
"High prices and rising interest rates are dealing consumers a one-two punch by catapulting monthly payments into a new realm," said Jessica Caldwell, Edmunds' executive director of insights. "With new vehicle purchases, automaker subsidies offer a bit of relief, but even those are far less generous than before. Consumers heading into the car market may be aware of high prices but also need to brace themselves for a different experience in the F&I office."
Edmunds analysts note a small uptick in shorter loan terms in Q3, which they say is reflective of more car shoppers taking advantage of subsidized interest rates offered by automakers. Edmunds data shows that 9.3% of financed new car purchases had an average loan term of 48 months or less in Q3 2022, compared to 4.5% in Q3 2020 when low interest rates and longer loan terms were a carrot for pandemic-weary shoppers.
Edmunds analysts calculated how much additional interest a consumer could expect to pay on a $40,000 car loan for 72 months at 5% APR versus 36 months at 1.9% APR. They note that jumping from 5% APR at 72 months to 1.9% APR at 36 months would push up the monthly payment by $500 to $1,144 but would save a consumer $5,200 in interest paid overall.
"Most car shoppers tend to have tunnel vision when it comes to their monthly payments and their knee-jerk reaction is to stretch out their loan terms to make pricier purchases a bit more palatable, but that's a huge risk to take when cars are already selling above MSRP and interest rates are so high," said Ivan Drury, Edmunds' director of insights. "Consumers who want to save where they can must think about the big picture when it comes to financing their car purchase. It might be a hard pill to swallow to agree to a much larger monthly payment, but if your ultimate goal is to save money and stay out of the red, you could save yourself thousands of dollars by taking this step — just make sure that the monthly payment you agree to is still within your means."
Note: Edmunds analysts have adjusted their auto finance data cleaning process to include new and used monthly payments up to $2,000 (previously the limit was up to $1,500) to account for changes to the market. Moving forward, this new limit will be applied to reported finance figures from January 2020 onward and may create minor discrepancies with previously reported figures.
Quarterly New-Car Finance Data
Quarterly Used-Car Finance Data
Edmunds guides car shoppers online from research to purchase. With in-depth reviews of every new vehicle, shopping tips from an in-house team of experts, plus a wealth of consumer and automotive market insights, Edmunds helps millions of shoppers each month select, price and buy a car with confidence. Regarded as one of America's best workplaces by Fortune, Great Place to Work and Built In, Edmunds is based in Santa Monica, California. Follow us on Twitter, Facebook and Instagram.
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