Car Insurance and Financing

Two new reports from automotive data company Edmunds show just what new car buyers are up against these days. Not only are prices near record highs, but so are monthly payments, thanks to rising interest rates.

"High prices and rising interest rates are dealing consumers a one-two punch by catapulting monthly payments into a new realm," said Jessica Caldwell, Edmunds’ executive director of Insights. "With new vehicle purchases, automaker subsidies offer a bit of relief, but even those are far less generous than before. Consumers heading into the car market may be aware of high prices but also need to brace themselves for a different experience in the F&I office."

Edmunds reports the average annual percentage rate (APR) on new financed vehicles in the third quarter of 2022 climbed to 5.7%, the highest rate since the third quarter of 2019.

At the same time, the average auto loan for new cars and trucks hit an all-time record high in the third quarter, rising to $41,347. That compares to $40,602 in the previous quarter and $38,315 in the third quarter of 2021.

Jaw-dropping payments

That makes for some jaw-dropping monthly car payments. Edmunds estimates that 14.3% of consumers who financed a new vehicle purchase in the third quarter of this year agreed to a monthly payment of $1,000 or more. That’s the highest level that Edmunds has on record.

The percentage is even greater for consumers purchasing an electric vehicle (EV). Edmunds says 26% of EV buyers are driving away with a monthly payment over $1,000.

For car buyers, there are only two ways to get a lower monthly payment. Put down more cash or select a less expensive vehicle. Despite worrisome macroeconomic conditions, Caldwell says consumers have been less inclined to spend less.

"Ongoing inventory shortages are partly to blame, but this trend is also a reflection of consumer preferences,” she said. “In the past decade, we've seen Americans embrace a bigger-is-better mindset by gravitating toward larger vehicles with more creature comforts, technology-heavy features, and more recently, electrified powertrains — but that all comes with added cost. Rising interest rates combined with higher prices has sent monthly payments soaring to new heights."

New car prices are still near record highs and interest rates continue to rise, making the purchase of a new car increasingly expensive. But it turns out there are five lease deals this month with monthly payments at or below $199 a month.

Automotive publisher Edmunds dug up the deals but notes these vehicles are not the most popular with consumers, which is why they are priced the way they are. Some require large initial payments, which must be considered along with the low monthly payment.

Let’s start with two Buick Encore models – the Encore and the Encore GX. They both list for about the same – just over $27,000. However, the Edmunds editors favor the GX over the Encore for its “sprightly acceleration, competent handling, and a robust list of tech features.”

Both small SUVs have $199 monthly payments but aren’t the values they might first appear. Both are 24-month leases and require upfront payments of over $5,600. When factored into the total cost, that $199 monthly payment is more like $432.

The 2022 Chevrolet Trax is also a 24-month lease but has a slightly lower initial payment – $4,319. The downside? The Edmunds editors say the Trax is small and practical, “but it's also slow and it doesn't have the best ride.”

36-month leases are more affordable

The 2022 Hyundai Venue may be the most attractive lease deal available in September. It's Hyundai's smallest SUV and the Edmunds reviewers say the Venue, “packs a lot into a very compact package.”

The MSRP is $20,295 but the lease carries a monthly payment of just $169 a month for 36 months. Even when adding in the $3,200 due at signing, the monthly cost is only $257.

The last vehicle on the list is the only sedan, the Hyundai Elantra. With an MSRP of just over $21,000 the Elantra lease is for 36 months and a monthly payment of $199 – $287 when the $3,200 upfront cost is considered.

The Elantra choice is a popular one with the Edmunds editors, who say that it “stands out with its high fuel economy, impressive technology and safety features, and roomy cabin.”

Things to consider

All of the lease deals end at the end of the month or early October. Keep in mind that these deals are not available in every state so car shoppers should make sure dealers in their states will honor them. Consumers leasing a vehicle in this environment should be mindful of one other thing.

The “residual” value of the vehicle, what it can be purchased for at the end of the lease, has never been higher because of the current high market value of used cars. Chances are, at the end of the lease the market will be back to normal and the vehicle will be worth less than its residual value.

Anyone leasing a car now should be prepared to turn it back in at the end of the lease, taking good care of it and staying under the mileage limit.

Not only are the prices of new and used cars going up, but so are the monthly payments used to finance them, according to a new report from automotive publisher Edmunds.

Those higher monthly payments are the result of a perfect storm of economic conditions. The cost of the vehicle and the interest rate used to formulate the monthly payment continued to move higher over the last few months.

As a result, Edmunds estimates that the average monthly payment for a new car or truck purchased in the first quarter was $648. That compares to $639 in the first quarter last year and $575 in the first quarter of 2020, just before the pandemic hit.

The monthly payment for the average used vehicle isn’t that much lower. Edmunds estimates that the average monthly payment for used vehicles is expected to break a record, climbing to $538. That's up from $432 in the first quarter of 2021.

Edmunds experts say the record monthly payments are the result of record prices for the cars and trucks themselves. They estimate that the average auto loan was $39,340 for a new vehicle and $30,040 for a used car or truck.

Using those calculations, the average new car loan increased by 12.2% year-over-year, and the average used car loan surged 28.6% higher. Edmunds data suggests that luxury new vehicle lease penetration fell to 32% in March 2022, down from 53% in March 2019.

Inventory is still a problem

The researchers say lower inventories are a massive problem for buyers who are looking for a good deal on a vehicle.

"Shrunken inventory continues to wreak havoc on both the new and used vehicle markets, and shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms," said Jessica Caldwell, Edmunds' executive director of insights.

Edmunds also estimates that the average new car buyer made a down payment of $6,026 in the last quarter, a 27% increase compared to the same period in 2021. It’s the first time that number has crossed $6,000.

“It’s a tough time to have to buy a car,” said Karl Brauer, executive analyst at iSeeCars.com, in a recent ConsumerAffairs interview. “I’m telling  people that if they can wait to replace their car, they should.”