The average car payment is at a record high
Inflation-battered consumers are finding no relief at car dealers. Rising interest rates and sky-high vehicle prices have resulted in record-high car payments for both new and used vehicles.
Automotive publisher Edmunds.com reports the average monthly payment for a new car or truck reached $656 in May, financed at 5.1% over 70 months. Used car payments weren’t much cheaper, with the average rising to $546, financed at 8.2% over 70 months.
Both records could be broken soon, automotive experts say. This week the Federal Reserve hiked the federal funds rate by 0.75%. That rate directly affects the rate banks charge for auto financing. Policymakers have signaled more rate hikes over the next few months.
Meanwhile, cars and trucks aren’t getting any cheaper. Karl Brauer, executive analyst at iSeeCars.com, says year-over-year price increases for used vehicles may be slowing but it’s not good news for consumers.
“The smaller year-over-year difference reflects last year’s price increases rather than this year’s prices going down,” Brauer told ConsumerAffairs. “It’s not that prices are dropping but that they’re stabilizing at a new, very high level.”
Brauer says the average used car sells for around $34,000, about $10,000 more than 15 months ago. Supply and demand continue to drive higher vehicle costs.
Persistent new car shortage
The shortage of computer chips and other supply chain constraints are forcing automakers to cut back production. With fewer new cars, demand for used cars is increasing and resulting in higher prices.
When consumers are able to locate a new car to their liking, they are also paying more for it. The latest Consumer Price Index (CPI) shows new car prices were up 12.6% year over year in May. The only consolation for new car buyers is the value of their trade-in is probably higher than they think.
Meanwhile, consumers who are buying a car or truck should shop for the best loan terms, which may vary from lender to lender. Dealers will offer buyers financing options, but there are usually better values through third-party lenders.
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