The supply chain issue was sending used car prices through the roof, and they were also affecting new car price negotiation (as well as supply). Things have seemed to calm down lately, but another hurdle has come into view over the past 15 months. It seems interest rates have climbed astronomically, and that makes it even more difficult for car buyers who are trying to stem the tide of rising costs in virtually every part of life.
Statistics show that interest rates in December of 2021 were 3.85% APR for a new car loan for a 60-month (5 years) term. The current rate (as of February) is an astounding 6.27% APR (image below from Statista). That's not quite double the rate, but it's pretty close. That's an increase of 2.42% in a scant 15-month time period. While that might not seem like a lot just by looking at the percentage, you just have to do the math.
The average new car price in December of 2022 was just under $50,000 (yes, read it and literally weep). That means if you put a 20% cash deposit on a car that costs $50,000 (not factoring in tax, tags, title, insurance, etc.), you were left with a total nut of around $40,000. This means if your interest rate was 3.85%, your monthly payment would've been about $550 per month for 60 months.
If you do the calculation based on the current interest rate of 6.27% using the same figures above, that means your monthly payment for 60 months on a $50,000 car with a 20% down payment would be about $584 per month. While that doesn't seem like all that much ($34 per month), over the 60-month period, that's an additional $2,040 you would be paying for your car. That's quite a bit of money when you think about it. If you're considering going to longer-term loan to keep costs down, that also might not be a great idea. The additional money for the increased interest rate will apply to that longer term.
It doesn't stop there. Auto loan interest rates are expected to remain high due based on changes made by the Federal Reserve Bank, and five-year new car loans are predicted to reach 6.9% by the end of 2023. It's time to think about making some budgetary changes or figure out if you're willing to downgrade the vehicle you plan on getting. Either way, this is hurting car buyers everywhere.
