The share of Americans spending more than $1,000 per month on their vehicle payments continued to increase steadily in the third quarter of 2023, according to a recent Edmunds survey.
Vehicle prices and the cost to finance them have soared in sync with interest rates. The Federal Reserve has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% in a bid to slow the economy and lower soaring inflation. As a consequence, the annual percentage rate (APR), or the amount Americans pay to finance a new car, rose to 7.4%, while used vehicle rates increased to 11.2% since the second quarter.
Those higher financing costs mean that roughly 17.5% now pay more than $1,000 or more a month on their car note, up from 17.1% the previous quarter, the survey said. The average monthly payment on a new vehicle in the third quarter reached an all-time peak of $736, up slightly from $733 in the second quarter. For used cars, the average down payment also reached a record high of $4,111, up from $4,107 in the second quarter.
“Spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” Edmunds Head of Insights Jessica Caldwell said. “And while the Federal Reserve held off on raising the federal funds rate in their most recent session, the expectation is rates will remain high or even increase slightly through the end of the year, which may help tame inflation in the long run but is inflating monthly payments for now.”
If you are looking to save money on your car costs, you could consider changing your auto insurance provider to get a lower monthly rate. Visit Credible to shop around and find your personalized premium without affecting your credit score.
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No-interest financing deals disappear
Buyers are seeing fewer 0% financing deals these days as higher rates prevail. The share of new cars financed at these extremely subvented rates peaked in the second quarter of 2020 at 24.2% of all sales but dropped significantly to reflect just 1.1% of transactions in the third quarter, according to Edmunds.
Despite the absence of 0% financing offers, there are still opportunities for deals across different car manufacturers, contingent upon factors such as availability, competition in the market and regional considerations, according to Edmunds.
“Zero-percent financing commercials might still be airing to draw shopper attention, but the reality is those deals are all but gone for the average car shopper,” Edmunds Director of Insights Ivan Drury said. “The largest segment of consumers financing a new car today has a 7.9% APR. That’s a far cry from those spring 2020 pandemic deals of 0% financing for 84 months that drove significant sales of large trucks and SUVs.”
Shopping around for new auto insurance can help lower your costs. The Credible marketplace can help you compare multiple providers and find your personalized rate in minutes.
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Use these tips to lower your monthly payments
While interest rates are rising, it’s not all bad news: Shoppers paid slightly less on average to finance new and used cars in the third quarter. The average financing amount for new cars decreased by $207 to $40,149 compared to the second quarter, while the amount for used cars dropped by $337 to $29,328 in the same period. Consumers can also use these tips to make sure they are getting the best deal, according to Edmunds:
Maximize your trade-in value
Knowing the value of your trade-in will likely get you top-dollar for it, and it could help lower the cost of your next purchase.
Shop for the best loan terms
Searching for pre-approved financing in a high-interest-rate environment could help you find a better deal. Edmunds advises consumers to shop for pre-approved financing as diligently as they shop for an actual vehicle.
Buy an older car with low mileage
A used vehicle could yield a better bargain than an outright new one. Many cars lose 20% of their value within the first year. You can capture that savings by purchasing a newer used car.
If you are struggling with rising car prices and want to save money, you could consider finding a new auto insurance provider to lower your monthly premium. You can visit Credible to compare multiple car insurance providers at once and choose the one with the best rate for you.
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