Many drivers pay over $1,000 a month for a car

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If the price of new vehicles shocks you these days, wait until you know the cost of monthly payments. The number of people paying more than $1,000 a month is at an all-time high according to Edmunds, based on June data. The average amount financed for a new vehicle in the second quarter? At a near record – just breaking the $40,000 mark.

Here’s a look at the numbers from Edmunds researchers:

  • The average annual percentage rate (APR) on new vehicles financed in Q2 2022 increased to 5% for the first time since Q1 2020.
  • 12.7% of consumers who financed a new vehicle purchase in June 2022 committed to making a monthly payment of $1,000 or more – the highest level recorded by Edmunds – compared to 7.3% in June 2021, 4.6% in June 2019 and 2.1% in June 2010.
  • The average amount financed for new vehicles reached a near-record high in the second quarter of 2022, climbing to $40,602 – from $39,726 in Q1 2022 and $36,215 in Q2 2021. Edmunds analysts note that the first and the only other time the average amount financed for new vehicles exceeded $40,000 was in Q4 2021, when the average APR was just 4.1%.
  • An influx of luxury buyers are turning their backs on leasing and choosing to buy their new vehicles. Data from Edmunds reveals that new vehicle leasing penetration fell to 18.5% in June 2022 from 30.5% in June 2019.

“Low interest rates were one of the few reprieves for car buyers amid high prices and supply shortages. But the Fed’s rate hikes this year are making financial incentives much more costly for automakers, and consumers are starting to feel the pinch,” said Jessica Caldwell. , executive director of Edmunds Ideas. “While there seems to be a steady stream of affluent consumers willing to commit to car payments that are more like mortgage payments, for most consumers the new car market is becoming increasingly out of reach. scope.”

Interest rate


Edmunds says it calculated how much additional interest consumers can expect to pay on a 72-month $40,000 car loan. The researchers note that switching to a 5% APR from a 4% APR would cost consumers $1,324 more in interest over the life of the loan. Switching to a 6% APR from a 4% APR would cost an additional $2,672.

“A single percentage point increase may not seem like a lot at first glance, but it’s hundreds or even thousands of dollars over the course of a 72 month (or longer) loan – a significant cost given that consumers are financing like never before,” said Ivan Drury, senior knowledge manager at Edmunds. “Looking for financial incentives was less necessary in recent years when finance rates were low, but looking for lower APR offers from dealers or third parties could make the difference in today’s market.”

term of the loan

When it comes to loan duration, consumers are opting for longer term loans to reduce their repayments. The number of car buyers opting for 73-84 month loan terms in June was 36.1% according to Edmunds, compared to 32.8% in June 2021.

“Consumers are exploring all possible avenues to make their next vehicle purchase affordable, and longer loan terms are a good example of this, even if this choice presents risks given the wear and tear on the vehicle and a greater large negative equity (the amount by which their loan balance exceeds the value of their vehicles) as their vehicle ages,” Drury said. “The best choices buyers can make are to stay as informed as possible and not not rely on the auto finance strategies of yesteryear – because buying a car in 2022 is a whole different ball game.”

Car Pro Show host and auto expert Jerry Reynolds warns car buyers against longer loan terms.

“That’s where restraint comes in. If you can’t get the car you want in 60 months, you should consider not buying the car. I understand that the moment you find out you can’t you can’t afford it, you’re already in There are a ton of car payment calculators online, so work out your budget and find out how much money you can finance over 60 months to get the payment you can afford, and stick with it,” advises Reynolds.

An auto loan calculator like the one from Edmunds can help you calculate the total amount you plan to finance. These include sale price, tax rates, title and registration, trade-in values, financing terms and more.

Note: Edmunds says its analysts have adjusted their auto finance data cleaning process to include new and used monthly payments up to $2,000 (previously the limit was $1,500), to account for changes in the market. Going forward, this new limit will be applied to financial figures reported from January 2020 onwards and may create minor discrepancies with previously reported figures.

Quarterly new car financing data
(Averages)

2022 Q2

2021 Q2

2022 Q1

Term

70.3

69.8

69.8

Monthly payment

$678

$597

$656

Amount financed

$40,602

$36,215

$39,726

APR

5.0%

4.5%

4.4%

Advance payment

$6,333

$4,981

$6,083

Quarterly Used Car Financing Data – Edmunds.com
(Averages)

2022 Q2

2021 Q2

2022 Q1

Term

70.8

68.9

70.4

Monthly payment

$555

$478

$542

Amount financed

$31,448

$26,963

$30,994

APR

8.2%

7.8%

7.8%

Advance payment

$3,658

$3,620

$3,604

For advice from Car Pro Show host Jerry Reynolds on car payments and loan terms, click here

Photo credit: OP Creative/Shutterstock.com.

This article originally appeared on CarProUSA

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