Monthly auto loan payments have hit an all time high, according to data published by Edmunds.
The report sourced data from the last quarter of 2022, a year which saw record breaking new vehicle prices. Edmunds found that 15% of car buyers who financed a new car in Q4 were paying over $1,000 a month, a new high for auto loan payments and up 5% from the year before.
Although external factors are taking a toll on personal finances, the report also warns that consumer buying habits are ill-advised for the market. Ivan Drury, Director of Insights at Edmunds, noted that many car buyers had purchased vehicles in 2020, when rates were low, and used vehicle prices were high. However, the onslaught of increased production, high inflation and interest hikes in 2022 caused auto loan payments to skyrocket, catching many consumers, who expected the pandemic trends to continue, off guard.
The insights from the report are concerning, but not unexpected. Many executives and dealerships have expressed worries of a recession in early 2023. Buyers who have waited for an economic recovery to make car purchases aren’t likely to reenter when they run the risk of high auto loan payments. The timing is exceptionally unfortunate, given that supply chain recoveries are expected to speed up production in 2023, allowing dealership inventories to grow, causing prices to drop.
Edmunds recommends that new buyers thoroughly research the historic value of a vehicle before they purchase, so they can avoid any surprises down the road. But for manufacturers and dealerships, financing and demand will likely continue to be a dangerous balancing act well into 2023.
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