Report: Financing Cars Costs Thousands More in 2018
Rising interest rates, longer loan terms, and higher average transaction prices means that on average, buyers pays more to purchase new vehicles than they did five years ago.
A combination of rising interest rates, longer loan terms, and higher average transaction prices means that on average, buyers could pay $6,500 more to purchase new vehicles than they did five years ago, according to a report by Edmunds, a car information and shopping platform.
During the first quarter of 2018, interest rates on new-vehicle loans grew sharply each month and ended in an annual percentage rate (APR) average of 5.7 percent in March 2018, compared to 4.4 percent in March 2013. Also, the average amount financed reached $31,020, compared to $26,533 in 2013. Loan terms have stretched to 69.5 months compared to 65.7 months five years ago.
"The rise in interest rates impacts car shoppers across all credit tiers," says Matt Jones, senior consumer advice editor at Edmunds. "Consumers will need to adjust their expectations on what they can now afford because they may not qualify for the same interest loan rates they did five years ago."
Added costs are amplified for car buyers with subprime credit. Subprime car shoppers could face twice the average APR on a new-vehicle loan.
Edmunds created a guide for car shoppers that suggests leasing and finding a car that has a low-APR offer for consumers with good credit, and buying a used car or fixing a current car for consumers with bad credit.
"While interest rates are rising, this doesn't necessarily mean that you have to buy a car right now," says Jones. "The best time to buy a car is when you need one and only after you have completed your research."