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As interest rates rise and car prices rise, a growing percentage of car buyers are signing up for loan payments of $1,000 or more each month, new research shows.
Overall, 14.3% of consumers who financed a new car in the third quarter committed to paying more than that amount, up from 8.3% in the same period last year, according to Edmunds. For electric vehicle buyers, the share is 26%. 24% for hybrids.
said Jessica Caldwell, Executive Director of Insights at Edmunds.
Interest rates on new car loans hit 5.7%, up from 4.3% a year ago, according to Edmonds data. With the Federal Reserve expected to keep raising interest rates to combat persistent inflation, auto loan rates could rise even further.
Average new car price approaches $46,000
JD Power and LMC Automotive estimate that the average price paid for a new vehicle in the third quarter was $45,971. Despite signs of a cooling market, its sticker price is 10.3% higher than the same period in 2021.
In addition, there were minimal sales incentives from the manufacturers, which usually reduce the total price. According to JD Power/LMC estimates, the average discount in September was about $936, down 47.8% from the previous year.
said Thomas King, president of data and analytics at JD Power.
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Continuing inventory shortages are also part of the reason for price increases, as are changes in consumer tastes.
“I’ve seen Americans gravitate towards bigger cars and embrace the idea that bigger is better,” said Caldwell, noting that these cars have the comfort of expensive creatures. He added that it is also equipped with advanced technology.
Trade-in value helps reduce loan amount
If possible, take advantage of the trade-in value of a used car.
King said the increase in monthly payments would be even greater unless the trade-in value of used cars for buyers increases. The average trade-in value for September was an estimated $9,617, up 21.7% from a year ago.
Used car prices have softened but remain 33% (or $8,810) higher than they would have been with typical depreciation over the past two years, according to car-shopping app Copilot.
While it may be less negotiable for buyers amid ongoing inventory issues, another way to keep payments down is to get a good credit score and get the best possible interest rate. That’s it.
While it’s difficult to know which credit score lenders use (they have options), having a general goal of keeping your credit report scratch-free helps Experts say it helps your score, regardless of company.
“The easiest ways to improve your credit score include checking your credit report for errors and keeping your open accounts in good standing. “It means that we have to pay in full and on time,” Jill said. Gonzalez, analyst and spokesperson for personal finance website WalletHub, said:
“Keeping unused accounts open can also improve your score, as it helps build a long credit history, which is essential for a good credit score.”