It’s not only soaring MSRPs for new vehicles that are making them inaccessible to many consumers as a new study has revealed that financing a new vehicle is also out of reach for many buyers across the United States.
Data compiled by Edmunds has revealed that the average monthly payment for a new vehicle in the U.S. hit $730 in the first quarter of 2023. This is an increase over the $717 of Q4 2022 and the $656 average monthly payment as of Q1 2022. Over an average loan term of just shy of 69 months, the average sum financed last quarter was $40,468, a rise from the $39,726 of twelve months ago.
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Furthermore, the average annual percentage rate (APR) on new financed vehicles climbed to 7% in Q1 2023 compared to 4.4% in Q1 2022. This is the highest level that Edmunds has on record since Q1 2008. There are also more shoppers financing a vehicle with monthly payments exceeding $1,000 than ever before. Indeed, 18.6% of shoppers financing a vehicle are paying over $1,000 per month. This represents a significant spike from the 10.3% of shoppers spending over $1,000 per month as of Q1 2022 and the 6.2% of buyers that were doing so in Q1 2021.
Q1 2023 New-Car Finance Data Broken Out by Loan Term Length
Edmunds also notes that the average down payment for a new vehicle climbed to a record high of $6,959 in Q1 2023 compared with the $6,083 in Q1 2022.
“Since inventory levels are improving, interest rates are now topping the list of the greatest obstacles that automakers will be facing in 2023 to move metal,” Edmunds’ executive director of insights Jessica Caldwell noted. “But with major challenges come great opportunities: Since interest rates are at the forefront of consumers’ minds, any automaker or dealer that can advertise incentives related specifically to interest rates will likely get more attention. This could be a powerful marketing tool that would enable sellers to tap into the significant pent-up demand that has been building over the past few years and convert that demand into actual sales.”
The analysis also found that in Q1 2023, more car shoppers (12.3% to be precise) are being pushed into 36- and 48-month loans. This is the highest on record since Q4 2009 as a majority of consumers are extending loan terms out as much as possible in order to increase affordability.
Quarterly New-Car Finance Data
Quarterly Used-Car Finance Data