As vehicle prices rise amid inflationary pressure, Americans buying new cars are taking on higher loans and pushing themselves deeper into debt, according to credit-monitoring company Experian.
For used vehicles, average loans jumped 18.66 percent, to $28,534, while the average monthly payment rose from $440 to $515.
Experian also found that consumers were shifting back to used vehicles, accounting for 61.78 percent of all vehicle financing during second quarter 2022, which is up from 58.48 percent during the year-ago period.
“Between the inventory shortage and rising vehicle costs, consumers are looking to make the most cost-effective decision, which is often a used vehicle,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions.
“The benefit of higher vehicle values is that consumers are able to get more for their trade-ins, which can help offset the increased cost of their next vehicle.”
According to market research firm J.D. Power, the average transaction price for a new vehicle is expected to hit a record high of $46,259 in August, up 11.5 percent from a year back.
Rising Auto Loans, Slowing SalesThe jump in average car loan amounts and monthly payments are happening amid an increase in auto loans. According to an Aug. 2 report published by the Federal Reserve Bank of New York’s Center for Microeconomic Data, household auto loans in Q2 rose by $33 billion to $199 billion, continuing an upward trajectory that has been in place since 2011.
Joelle Scally, administrator of the Center for Microeconomic Data, pointed out that the “robust” increase in auto loans is being driven partly by rising prices.
“Rising interest rates and historically low consumer sentiment are keeping many potential buyers out of the new-vehicle market. And high prices for both gasoline and vehicles are making affordability an even greater challenge,” he said.
But the biggest obstacle over the near term is the lack of supply, Chesbrough stated, while expressing doubt about new-vehicle supply returning back to “a healthier level” anytime soon.