Car buyers will have more options available this fall, but with auto loan interest rates at their highest in years, it may cost you extra to make a purchase.
Auto industry experts say the market is shifting in response to the Federal Reserve raising interest rates to combat inflation.
According to Edmonds, the Fed’s rate hike has pushed the average interest rate on new car loans to 5.7% in the third quarter of 2022, up from 4.3% last year, the highest level in three years.
Rising borrowing costs will discourage many consumers from buying new cars, experts say.
“High prices and rising interest rates are giving consumers a one-two punch by pushing monthly payments into new territory,” said Jessica Caldwell, executive director of insights at Edmunds, in a release.
Through the third quarter of 2022, the average monthly payment for a new car purchase was over $700, according to Edmunds. With new car prices skyrocketing and auto loan interest rates rising over the past year, more than 14% of new car buyers are paying more than his $1,000 in monthly payments, compared to 8.3% of him a year ago. increasing from
Improved supply chains and less competition on the part of buyers may ease prices and improve affordability in the future, but how prices and auto loan rates will change in the coming months I don’t know yet.
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New car supply is likely to improve
As supply problems ease, interest rates rise and consumer spending slows, officials expect the competition for financed purchases in many categories, including new and used cars, to cool down. Federal Reserve Governor Lisa Cook said in a recent speech that inflation is slowing in the auto market.
“Wholesale prices for used cars have fallen significantly, but there is some uncertainty as to how long it will take for the decline to be reflected in consumer prices. new car prices should moderate over time, as they continue to do so,” she said.
According to Cox Automotive, the parent company of the Kelley Blue Book, wholesale used car prices fell 3% from September to August as used car supply recovered. Retail prices typically fall after wholesale prices fall, and used car retail prices have also fallen slightly in recent months.
New car supplies have also improved in the aftermath of the pandemic’s disruption to the auto industry, but Cox’s expert said as dealers stocked more cars, Americans needed more to buy them. I worry that I won’t be able to afford to pay the loan.
“The industry has seen rapid movements in interest rates drive demand in the same way that volumes are starting to rise from supply-constrained, recession-like lows,” Cox chief economist Jonathan Smoke said in a report. is decreasing,” he said.
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High prices and large auto loans
According to Edmonds, Americans who bought a car in the third quarter of 2022 are taking out more loans than ever before. The average loan amount increased from his $38,315 the year before to his $41,347.
New car prices are also at record highs in the United States, according to the Kelly Blue Book. Consumers paid an average of $48,301 for a new car in August.
Smoke says the US new car market will become a more “luxury” market. Automakers are likely to try to cater to high-income buyers who can get better financing and can afford a car in today’s economy, he said.
Low-income buyers are particularly affected by rising interest rates. Because you can’t make a profitable loan from the beginning. Higher monthly payments will keep some low-income people from buying a new car, Smoke says.
According to Edmunds, over the past two years, the percentage of car buyers choosing a loan of 48 months or less has more than doubled. Short-term car loans usually have lower interest rates. This trend shows that buyers who have the means to increase their monthly payments are looking for ways to lower their interest costs.
For buyers who can’t afford to pay more in the short term, buying a car may remain difficult unless interest rates and prices go down. However, the downward trend in wholesale used car prices suggests that affordability may improve in the future.
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The average price of a new car is approaching $50,000