Car payments have skyrocketed in recent years due to a combination of high prices and interest rates. While some relief may be on the horizon, industry experts say prices could remain elevated for some time.
In May, customers paid an average of $760 per month for a car loan, according to Moody’s Analytics. Although this is a decrease from the peak of $795 in December 2022, it still represents an increase of about 40% compared to the average payment of $535 in May 2019, before the pandemic.
An almost record number of 17% of car owners are paying more than $1,000 per month, according to Edmunds, a car shopping site and industry data provider. While slightly below the record of 17.9% in the fourth quarter of 2023, the rate has remained above 17% for a year.
Many customers who purchased vehicles at high prices during the pandemic have loans that exceed the value of the car – at a record amount. In the first quarter, 23% of customers who traded in their cars had negative equity of more than $6,167 on average, according to Edmunds.
Trading in a vehicle with negative equity often means the consumer rolls over the balance owed into the new loan, resulting in higher payments, with higher interest rates, over longer periods.
In the first quarter of 2024, the average payment with a trade-in was $736, with an average interest rate of 7.1% for 68 months. The rate for a trade-in with negative equity was $887, at an 8.1% rate, for nearly 76 months.
Additionally, it is unclear when the Central Bank will lower interest rates, and even when it does, there is a lag of about six months before that change begins to show up in loan rates.
The Central Bank does not set car loan rates but determines the rate at which banks can borrow from federal funds. Therefore, it influences the rates that banks charge customers for loans, including car loans.
Source: CNBC