Monthly auto loan payments hit all-time high: Those paying $1,000 a month DOUBLE in a year

  • The percentage of people taking out car loans and paying $1,000 in monthly payments has nearly doubled from 7% to 12.7% in the past 12 months.
  • Average monthly payments on car loans hit a record high of $686
  • In the used car market, average monthly payments are $554, up 12% year-over-year
  • Pandemic supply chain problems are partly to blame for new car shortages, pushing up front-line prices
  • Monthly interest payments also rose after the Federal Reserve raised rates

A record number of Americans are paying at least $1,000 a month to finance their new cars as interest rates rise and supply chains struggle due to the pandemic.

At least 12.7 percent of new car buyers who took out loans last month made monthly payments of at least $1,000, according to the car shopping website Edmunds.

At this time last year, the figure was close to 7 percent. In 2019, this level was closer to 5 percent. More than ten years ago, in June 2010, only 2 percent paid such amounts.

Monthly auto loan payments are also at a record high with the June average at $686. This figure has increased by 4 percent compared to January of this year and by 13 percent compared to July 2021.

A record 12.7 percent of new car buyers who took out loans last month have monthly payments of at least $1,000. In 2019, the level was closer to 5 percent. In 2013, such amounts were paid less than 2 percent. Source: Edmunds

Monthly auto loan payments are also at a record high with the June average at $686.  In the used car market, the average monthly payment was $554 per month.  Source: Edmunds

Monthly auto loan payments are also at a record high with the June average at $686. In the used car market, the average monthly payment was $554 per month. Source: Edmunds

Things aren’t much better in the used car market, where average monthly payments are also at record levels. In June, the average monthly payment for a used car was $554, up 12 percent from this time last year.

The cost of purchasing a new vehicle is much higher than it was before the pandemic due to pandemic-related supply chain issues that have caused a shortage of new vehicles.

Meanwhile, interest payments also soared after the Federal Reserve raised rates.

“Low interest rates used to be one of the few reprieve for car buyers amid high prices and tight supply. But the Fed’s rate hikes this year make fiscal stimulus much more expensive for automakers, and consumers are starting to feel the pinch, said Jessica Caldwell, executive director of insights at Edmunds.

“While there is a steady stream of affluent consumers willing to make car payments that are more akin to mortgage payments, the new car market is increasingly out of reach for most consumers.”

Prices have also risen because consumer tastes have changed, with more expensive SUVs and pickup trucks becoming more popular.

“When it comes to buying a car right now, it’s a go-big-or-go-home attitude,” said Ivan Drury, senior manager of information research at Edmunds.

Customers whose leases are coming to an end soon also find that their payments rise significantly when they have to renew their loan and financing agreements.

“An increase of one percentage point may seem small at first glance, but it adds hundreds, if not thousands, of dollars over the course of a 72-month or longer loan,” Drury said.

“In recent years, when financing rates have been low, the search for financial incentives has been less necessary, but shopping around for lower APR offers from dealers or third parties could make a difference in today’s market.

However, those looking for new cars often have good credit scores and a decent amount of money for a down payment.

Buyers in the second quarter of 2022 bid an average of $6,333, up 25 percent from 2021, according to the Wall Street Journal.

To try to keep monthly costs down, some drivers sign up for loans with longer repayment terms of up to five to six years and sometimes more.

Although the monthly payments are lower, this can mean that buyers end up paying more in interest – possibly more than the value of the car itself.

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