Buying a used car is still expensive Supply chain Bottlenecks eased, pushing the average loan amount to $28,506.
According to credit scoring company Experian, consumers still rely heavily on financing to buy a car, with average loan amounts up 8.59% year-over-year.
However, there are some bright spots.
“Used car prices have risen at an alarming rate since the start of the inventory shortage, and the momentum appears to be slowing, which bodes well for consumers looking to buy a car. .” Experian. “Average loan amounts and monthly payments continue to rise, but there are many factors, including rising interest rates.”
The amount consumers are borrowing to finance their used cars is increasing at a slow pace. In the third quarter of 2021, Experian reported a year-on-year increase of he 21.37%. In the third quarter of this year, that amount he increased by 8.6%.
Supply chain challenges due to the global pandemic from crimped semiconductor chip supplies have reduced the number of new vehicles available, so the value of used cars has skyrocketed.
With new inventory in short supply, many drivers chose to buy used cars, but high demand drove prices up.
The average new car loan amount also increased significantly, from $37,753 in Q3 2021 to $41,665 in Q3 2022.
Used car loan interest rate exceeds 9%
Interest rates continue to rise for both used and new car loans. federal reserve raise interest rates in an attempt to curb inflation.
Experian data shows average interest rates for new car loans were 5.16% and used car loans were 9.34% in the third quarter, up from 4.09% and 8.12% in 2021.
Greg McBride, Chief Financial Analyst at Bankrate, a New York-based financial data company, told TheStreet:
“Used car interest rates are at 11-year highs, as are new car loan rates,” he said. “Given this, the Federal Reserve’s benchmark interest rate is at his highest since 2008, so auto loan rates aren’t rising that fast.”
McBride said the reason used car loans have higher interest rates is because the risk of delinquency or default on old car loans is high.
“If the car breaks down, it’s unlikely to be under warranty, and if the vehicle is in a repair shop, the borrower may have trouble getting a job or keeping payments,” he said. Told.
auto loans are getting longer
Drivers are also taking longer-term loans, often increasing the total amount they pay for interest.
The average duration of vehicle loans increased from 69.5 months in Q3 2021 to 69.7 months for new vehicles in Q3.
Longer loan terms occurred on used vehicles, increasing from 66.97 months in Q3 2021 to 68.08 months in Q3.
Before taking out a car loan, consumers should get a copy of their credit report to make sure there are no errors that could “accidentally damage your credit,” McBride said.
Before you go car shopping, he recommends comparing banks, credit unions, and online lenders to consider financing and line them up.
“Not only does this set boundaries on how much you can spend, but it also allows you to negotiate the price of the car independently of financing,” he said. It will not be.”
More and more consumers are getting auto loans from credit unions instead of going to the bank.
Credit unions owned 28.4% of auto loans in the third quarter, compared with 20.2% in the third quarter of 2021, up 40% year-over-year.
Banks’ auto loan market share fell from 32.5% in Q3 2021 to 27.3% in Q3.
New car leasing fell from 27.3% in 2021 to 18% in Q3.
Consumers are shifting to leasing larger vehicles such as full-size trucks and SUVs, which make up the top 10 most leased models.
Lease car payments are often lower than payments where the average difference between loan and lease payments is $133.
“Choosing to lease is one way consumers manage their monthly payments and, in many cases, how they buy a car,” said Zabritski. “Affordability remains a top priority as declining leasing combined with a shortage of new vehicle inventory will impact used vehicle availability in the coming years.”
According to Experian, the average credit score for auto loans continues to rise from 733 for new car loans to 738 for used car loans and 678 for used car loans.
Wyoming has the highest percentage of used car loans at 85.4%, while New York reports the lowest at 65.5%.
New car loan payments over $700
Auto loan payments topped the $700 level for the first time in July as prices surged since the start of the global pandemic, fueling consumer appetite for bigger new cars.
Thomas King, president of data and analytics at JD Power, a data and analytics firm based in Troy, Michigan, said that along with higher car prices and interest rates on loans, discounts from auto dealers were down. states that his monthly payments are over $700.
“The average monthly financial payment in July is on pace to reach a record high of $708, up $81 from July 2021,” he said.
