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Jan. 4 (UPI) — Rising interest rates and a plummeting used car market have car buyers ponying up obscene monthly car payments and at a high rate.
In the fourth quarter of 2022, more than 15% of consumers who financed a new vehicle were hit with a monthly car payment of $1,000 or more. That is the highest rate ever seen and more than 5% higher than fourth quarter 2021, according to data from Edmunds.
“Just as new and used car prices finally started to cool off in Q4, rapidly rising interest rates created an even greater barrier to entry for consumers who rely on financing — which is the vast majority of car shoppers,” said Ivan Drury, Edmunds’ director of insights.
“Although the last quarter of the year typically skews toward luxury vehicle purchases, this near-record percentage of vehicles that are being purchased rather than leased reflect tougher market conditions far more than affluent consumers shelling out a bit more than usual to treat themselves over the holiday season.”
Used cars also fetched a heavy price. A record 5.4% of consumers financed monthly payments of $1,000 or more. In 2020, just 1.5% of used car buyers entered into financing with payments that high.
Annual percentage rates for new vehicles climbed just shy of a percentage point between the third and fourth quarter, averaging about 6.5%. The APR on a used vehicle went up from 9% to 10%.
To battle the less-than-favorable options at the dealership, consumers are laying down larger down payments than ever. The average down payment on a new vehicle was $6,780, and for used vehicles, $3,921.
“At the onset of the pandemic, consumers benefited from low interest rates and elevated trade-in values, helping shield even the more questionable financing decisions from resulting in negative equity,” Drury said.
“But as we shifted toward an environment with diminished used car values and rising interest rates over the past few months, consumers have become less insulated from those riskier loan decisions, and we are only seeing the tip of the negative equity iceberg.”
