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A growing share of car buyers are signing up for monthly payments of $1,000 or more amid rising interest rates and high auto prices, a new study finds.
Overall, 14.3% of consumers who financed a new vehicle in the third quarter committed to making payments equal to or greater than this amount, compared to 8.3% in the prior year period. according to Edmunds. For buyers of electric vehicles, this share is 26%; for hybrids, 24%.
“High prices and rising interest rates are giving consumers a boost by catapulting monthly payments into a new realm,” said Jessica Caldwell, chief information officer at Edmunds.
The interest rate on new auto loans hit 5.7%, from 4.3% a year ago, according to data from Edmunds. And with the Federal Reserve expected to continue raising interest rates to combat persistent inflation, auto loan rates could rise further.
The average price of a new car is around $46,000
The average price paid for a new car in the third quarter was $45,971, according to an estimate from JD Power and LMC Automotive. Although there are signs that the market is cooling, this sticker price is 10.3% higher than the same period in 2021.
In addition, manufacturers’ sales incentives, which usually drive down the total price, were minimal. In September, the average discount was around $936, down 47.8% from a year earlier, according to JD Power/LMC’s estimate.
“Lack of inventory, coupled with strong demand, continues to allow manufacturers to maintain a low level of discounting,” said Thomas King, president of the data and analytics division at JD Power.
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Persistent inventory shortages are also partly responsible for the price hike, as are shifting consumer preferences.
“We’ve seen Americans adopt a bigger-is-better mindset by turning to larger vehicles,” Caldwell said, adding that these cars also come with expensive comforts and advanced technology. .
Trade-in values can help reduce loan amounts
If you can, take advantage of the trade-in value of your used vehicle.
The increase in monthly payments would be greater without buyers’ higher used-car trade-in values, King said. The average trade value for September was estimated at $9,617, up 21.7% from a year ago.
While used car prices are falling, they’re still 33% — or $8,810 — higher than they would be if typical depreciation had occurred over the past two years, according to CoPilot, an app for buying cars.
For buyers, while there may be less room for negotiation amid ongoing inventory issues, another way to lower your payment is to get the best interest rate possible by having a good credit rating. credit.
While it’s hard to know what credit score a lender will use (they have options), having a general goal of avoiding hits on your credit report helps your score no matter what company it is. uses, experts say.
“Some of the easiest ways to boost your credit score include checking your credit report for errors and keeping your open accounts in good standing – the latter means paying all your credit bills on time and in full every month,” Jill said. Gonzalez, analyst and spokesperson for personal finance website WalletHub.
“You can also improve your score by keeping unused accounts open, as this helps build a long credit history, which is essential for a good credit score,” she said.