As supply chain issues continue to improve, we’re seeing more inventory on dealer lots and fewer cars selling over sticker. Unfortunately for consumers, that’s about where the good news ends. Used car prices have been rising, making it harder for cash-strapped buyers to afford to replace their aging vehicles, interest rates are on the rise, and the percentage of extremely high monthly payments continues to increase to eye-watering levels.
Edmunds reports that the average interest rate in Q1 2023 on a new vehicle was 7 percent, up from 4.4 percent in the same quarter last year. It’s also the highest average interest rate that Edmunds has recorded since 2008. That said, after 14 months of increasing interest rates, the figure for March stayed flat, so at least the bad news didn’t get even worse than it already was.
Monthly payments are also reportedly at record highs. The average for Q1 was $730, up from $656 the year before. And if you think that’s high, you should see how many people are taking on monthly payments of $1,000 or more. Back in 2021, only 6.2 percent of people financing new cars had four-figure monthly payments. Today, that percentage is 16.8 percent.
And that concerning rise in monthly payments is not because people are putting less money down when they finance. The average downpayment for a new car is reportedly also at a record high of $6,956, up from $6,083 in Q1 2022. Additionally, the average length of a car loan is about 70 months, meaning consumers will be stuck with those high payments for a very, very long time.
If you can easily afford payments that high and have a super stable, extremely well-paying job, we’re not going to stop you from going for it. But for most people, it seems like the best thing to do right now is to just keep the car you currently own for a little longer if you can and hope things eventually calm down.