More Than 12% of New Car Payments Top $1000 a Month
There are increasing numbers of new car buyers who are financing their purchases and paying more than $1000 a month. Data from Edmunds revealed that 12.7 percent of all new-car loans came with four-digit payment plans in June 2022.You can probably guess the reasons: inflation and limited new-vehicle supply have led to high new-car prices, which result in these higher monthly payments.To deal with the high cost of new cars, car shoppers are taking out longer loans and accepting higher annual percentage rates.
As average prices of new cars just keep moving on up, up, up, the number of people accepting monthly payments of over $1000 a month is also going up. It’s shocking, but it’s not surprising.
This tidbit comes to us from a data analysis of the month of June just released from Edmunds, which found that a record 12.7 percent of new car buyers took out vehicle loans with monthly payments over $1000. Edmunds said this is the highest level it has ever recorded, with the percentages of four-digit payments in previous Junes hitting 7.3 percent in 2021, 4.6 percent in 2019, and just 2.1 percent in 2010.
Earlier this month, we noted that the average monthly payment for new cars was somewhere around $650 to $700 in the U.S., which could be expected considering that the average price of a new car hit $47,148 in May, according to KBB. U.S. Bureau of Labor Statistics figures show that new-car prices have risen 12.6 percent in just the past year.
There are other indications of changes to our car-buying habits due to the industry’s high prices in the Edmunds data. In the second quarter of 2022, the average annual percentage rate (APR) on new financed vehicles hit 5 percent. It hadn’t been that high sincethe first quarter of 2020. Another indicator is that more new-car shoppers (36.1 percent) are choosing longer loan terms of 73 to 84 months than the 32.8 percent who did so in June 2021.
Also, the average total amount that new-car buyers are financing also hit near-record highs last quarter, climbing to $40,602, compared with the $39,726 average in the first quarter of this year and $36,215 in the second quarter of 2021. Edmunds said that the only other time when the average was over $40,000 was in the fourth quarter of 2021 and at that time, the average APR was 4.1 percent.
Higher APRs mean a larger total repayment amount. Edmunds said that with a 72-month car loan for $40,000, going from a 4 percent APR to 5 percent raises the total cost by $1324, while signing up for a 6 percent APR (compared to 4 percent) means you’ll pay $2672 more over the course of the loan.
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