Way More People Are Paying $1,000 a Month for Their Cars Now
A recent study shows nearly 17% of new car buyers in 2023 committed to these terms, up from about 10% in the same period last year.
Rising interest rates and rising car prices had a predictable impact on monthly payments for new car buyers last month: they’re rising. That’s according to a report by Edmunds released Monday that showed auto loan rates are the highest they’ve been in 15 years. Additionally, the number of people paying more than $1,000 per month for their new cars is inching higher.
According to the report, the average monthly payment for new cars reached $730 per month in the first three months of this year, up from $656 during the same period last year. The average annual percentage rate for those purchases landed at 7%, up from 4.4% last year. Unsurprisingly, almost one in five new car buyers committed to paying more than $1,000 per month for their car—nearly 17% of buyers—which is up from roughly 10% in 2022 and 6.2% in 2021.
"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, in a statement.
Down payments similarly rose in the first three months of 2023 as well. On average, buyers put down nearly $7,000 toward their financed amount versus just over $6,000 last year.
Fewer people are opting for traditional three- and four-year loans for their purchases, which means they would be ineligible for “teaser” rates often advertised by manufacturers. Those loans are typically subsidized by automakers, while longer loans—vastly more popular among buyers—aren’t. Two out of three buyers opted for a loan between 5.5 years and eight years, paying on average more than $10,000 in interest alone on their new-car loan. The average amount financed crept higher, too. Buyers rolling up into those longer loans financed more than $41,000 for their vehicle purchases at interest rates between 7.7% and 8.4%.
"It takes money to save money in today's market,” Ivan Drury, Edmunds' director of insights, said in a statement. "If you're a qualified buyer and have the means to put more money down, whether in cash or via your trade-in, know that you have a serious advantage—you'll be committing to a much larger amount toward the down or monthly payment, but you will save up to tens of thousands of dollars over the course of your auto loan."
New car loans are typically offered with much lower interest rates than used car loans, and while it’s easy to scoff at buyers opting into higher loan amounts for longer terms, the reality is that many car buyers are increasingly faced with difficult decisions: Commit to longer, more expensive loans or walk. Rock, meet hard place.
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