Car loan payments reach new high, and that was before the Fed raised interest rates


The Federal Reserve’s decision Wednesday to raise interest rates will make borrowing more expensive for consumers. It’s not just rates for mortgages and credit cards, but car loans, too.

We’ve heard for months about how supply chain issues have caused both new and used car prices to spike.

The average annual percentage rate (APR) for new vehicles climbed to 5.1% in May, the highest level seen since the start of the pandemic, according to data from Edmunds.com, a vehicle research company. And that was before the Fed’s move.

“Given that auto loan delinquency is expected to rise, now is more important than ever for car shoppers to understand the risks associated with financing more than what they can afford,” said Jessica Caldwell, Edmunds’ executive director of insights.

She noted that as interest rate hikes and supply chain issues are expected to continue, “car shoppers are going to be facing an even more challenging market.”

Also in May, both monthly payments on cars and the average loan terms reached record highs, Edmunds said.

Average new ($656) and used ($546) monthly car payments climbed to the highest levels since Edmunds started tracking new car finance data in 2002 and used car finance data in 2007.

And the average loan term for a used vehicle was 70.8 months, also the highest on record, Edmunds said. Consumers often stretch out the length of the loan term to make monthly payments smaller, but it will cost them more interest over time.

“Lower interest rates have historically been relied upon by car shoppers – particularly new car shoppers – to get into bigger vehicles with more options,” Caldwell said. “Until recently, interest rates have been a bit of a cushion for consumers making car purchases amid elevated prices, high demand and limited inventory.”

If you’re buying a car, shop around for the best loan rates before you actually shop for the vehicle. Don’t count only on financing offered by a dealer, but instead, search online and ask your bank or credit union if it can offer you a better deal.

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Karin Price Mueller may be reached at KPriceMueller@NJAdvanceMedia.com. Follow her on Twitter at @KPMueller.

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