The average auto loan interest rate for the purchase of a new vehicle reached the highest level since 2008 in the first quarter of 2023. Combine this with expensive new car prices and the average payment of new cars just hit an all-time high of over $700.
According to a new Edmunds report, car buyers who financed a new vehicle in the first few months of the year committed to an average car loan interest rate of 7%, compared to 4.4% in the first quarter of 2022.
Current auto loan rates are one of the challenges facing U.S. consumers as a result of the Federal Reserve’s interest rate hikes over the past year as it has tried to curb inflation .
The average price of a new car remains extremely high at nearly $49,000, and while the Fed’s rate hikes may have put some downward pressure on car prices, higher borrowing costs have making it harder to afford a new car.
What the experts say
Rising auto loan rates helped push the average monthly payment for new vehicles purchased in the first quarter to $730, a record and up from $656 a year ago, the report said.
However, it appears that auto loan rates may be stabilizing. Auto loan rates were steady at 7% last month, snapping a 14-month streak of nonstop increases.
An increase in subsidized financing offers from automakers kept auto loan rates from rising in March, according to the report, which notes that such offers can heavily influence buyers’ decisions.
- “With interest rates at the forefront of consumers’ minds, any automaker or dealership that can advertise incentives specifically related to interest rates will likely get more attention,” said Jessica Caldwell, chief executive of ‘Edmunds company information.
- While low APR financing offers are available for some new cars, they generally have the trade-off of requiring a shorter loan term, and only a subset of buyers can afford the high monthly payments that come with them.
- Similarly, buyers who have the money to make a large down payment, or who have a valuable car they can trade in when they buy, will have an easier time in today’s market because they can avoid thousands of dollars in interest payments, according to the report.
- That dynamic is likely one reason why the average down payment for a new vehicle purchase hit an all-time high of $6,956 in the first quarter, up sharply from $6,083 in the same period a year ago, according to Edmonds.
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