Car payments for new and used vehicles rose to all-time highs over the third quarter, according to automotive data firm Edmunds.
The economic impact of the COVID pandemic has increased the burden on consumers across all industries. This is especially true for vehicle buyers, who continue to face unaffordable prices and lack optimal financing options. Annual percentage rates (APR) on used and new car payments reached all-time highs between July and September. APRs rose to 7.4% for new and 11.2% for preowned, increases of 3% and 2% from Q2, respectively. Edmunds notes these are the highest numbers on record since the 2008 recession.
As a result, monthly car payments and down payments also reached new highs in the third quarter. By the end of September, consumers paid an average of $736 per month on their new vehicle purchases. Although this only represents a $3 increase from the April through June period, it is the highest number on record. In comparison, buyers paid $554 per month for the entire year of 2019, according to Experian and Kelley Blue Book data, meaning that costs have inflated nearly 33% since the onset of the pandemic. Used vehicle down payments also reached a record-breaking total of $4,111 in Q3, although this, too, represents only a marginal increase from the prior quarter.
Jessica Caldwell, head of insights at Edmunds, attributes these increases to the Federal Reserve’s continued battle against inflation. “Spiked interest rates remain the biggest impediment to affordability in both the new and used car markets today,” she stated. Car payments could increase even more before the end of the year. Although the Fed decided against another rate hike in September, the possibility of another increase in the coming months is relatively high. Caldwell also notes that the United Auto Workers strike, now at the end of its third week, could exacerbate the automotive industry’s ongoing inventory shortages. While recovering supply chains have helped alleviate the issue over the last 12 months, OEM production is slowly grinding to a halt as more employees join the picket line. Unless demand declines rapidly or a deal is reached soon between the UAW and Detroit car manufacturers, prices are almost certain to increase in the coming months.