Rising interest rates are sending car payments into record territory

Photo (c) Tero Vesalainen - Getty Images

A quarter of new car buyers are spending at least $1,000 a month

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."

Quick and easy. Get matched with an Auto Warranty partner.