If you are in the market for a new car, you may be in for a whole lot of sticker shock. Inventory is high, and when there are lots of cars to choose from that typically means prices are competitive. And since many people probably have not purchased a car in the past couple of years, you would think this is the perfect opportunity to find exactly what you are looking for, both in model and price.
Unfortunately, things are a little more complicated these days. Record inflation, of course, has caused the price of many things to skyrocket, and the chip shortages certainly aren’t helping. But the big issue right now is interest rates, which some experts say are heading for their highest level in 14 years. So while the average transaction price for a [new] car slipped a little—to approximately 48,000—after five consecutive months of increases, it does not appear this is a trend that will continue.
According to data from Edmunds, the average annual percentage rate on a loan for a new vehicle is 6.3%, which is up from 4.2% about one year ago. An increase of less than 2% may not seem like much but its about the difference between a monthly payment of $655 and $703. Similarly, secondhand market loan rates climbed nearly the same amount, from 7.4% to 9.6%; increasing monthly payments from $520 to $564.
The average auto loan rate was only 3.98% in March.
Indeed, Edmunds executive director of insights, Jessica Caldwell, notes, “New vehicle inventory might finally be improving, but the automotive industry is still on a long road to recovery because rising interest rates are creating a major barrier to entry for car shoppers.”
This is not the first time used car APRs surpassed 9.65%. As a matter of fact, it was only about 12 years ago (so 2010). However, at that time, the price for a pre-owned vehicle was just under $17,000; today the same—secondhand—vehicle could sell for more than $30,700. The confluence of supply shortages, inflation, interest rates, and inventory, then, is broadly complicating the auto market.
As Caldwell cautions, “Many consumers who have been sitting out of the market due to high prices and limited options will likely continue to do so over high interest rates.”
