In an effort to curb out-of-control inflation, the Fed’s recent interest rate hikes are starting to be felt by dealers and consumers alike. However, struggling inventory levels could prevent the actual effects of these increases on sales volume from being recognized for what they are.
The average interest rate on a new vehicle loan increased to 4.8% in May 2022. That’s the highest rate since March of 2020, when the rate was 5.3% just before the pandemic hit. The interest rate increased by almost an entire percentage point between December 2021 and May 2022.
Data collected from S&P Global Mobility and TransUnion show that the increases affect higher credit tiers more than lower ones. The average APR for upper-level credit tiers rose this past May compared to a year ago. However, the lower-level credit tier has increased over the past few months but remains the same as a year prior.
The range between interest rates has also narrowed. The gap between the APR for lowest and highest tier customers narrowed to 7.3 PP in June, compared with 9.3 PP for the same month last year.
These increases have caused loan and lease monthly payments to hit four-year highs. The average loan APR in June was $686, the highest since the beginning of 2019. In May 2022, the average lease payment was $559, up $71 from June 2021.
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