Auto Loan Interest Rates Skyrocketing: Edmunds Experts Share Money-Saving Car Shopping Tips Ahead of Black Friday Weekend

SANTA MONICA, Calif., Nov. 18, 2022 /PRNewswire/ -- New and used car prices might be cooling slightly ahead of the holiday season, but the car shopping experts at Edmunds caution that rising interest rates should make consumers reevaluate their shopping habits before quickly jumping into a car loan. According to Edmunds data:

• Average transaction prices for new and used vehicles are softening but are still elevated year-over-year. The average transaction price (ATP) for a new vehicle dipped to $46,991 in October 2022 compared to a peak of $47,222 in June 2022, but still represents a 3.1% year-over-year increase compared to October 2021. The ATP for a used vehicle dipped to $30,045 in October 2022 compared to a peak of $31,095 in April 2022, but still represents a 4.7% year-over-year increase compared to October 2021.
• Interest rates for new and used vehicles are skyrocketing. The average annual percentage rate (APR) for a financed new vehicle purchase climbed to 6.3% in October 2022 compared to 4.2% in October 2021, and is the highest new vehicle APR since April 2019. The average APR for a used vehicle purchase climbed to 9.6% in October 2022 compared to 7.4% in October 2021, which is the highest since February 2010.
• More car shoppers are opting into longer auto loan terms to make monthly payments more palatable. Edmunds data shows that 34% of financed new car purchases had an average loan term of 73+ months in October 2022, compared to 27% in October 2017.

"Car shoppers might be going into Black Friday weekend aware that elevated prices and limited inventory will make deals harder to come by, but they might not fully understand just how critical it is to prepare for their purchase, and how they will finance it, before going to the dealer," said Jessica Caldwell, Edmunds' executive director of insights. "The last time interest rates were this high, consumers could at least rely on lower vehicle prices and a greater range of inventory to soften the blow. That simply isn't the case in this market."

To help car shoppers ahead of the holidays, Edmunds experts put together a list of insider tips to help consumers avoid major pitfalls and maximize savings:

• Start your shopping process by getting preapproved for financing. Make sure to seek approval from more than one lender to see what you qualify for. With a preapproved loan offer in hand, you can quickly decide whether the finance rate the car dealership offers you is the better deal.
• Search for promotional APR offers in your area. More automakers are offering to subsidize auto loans with lower interest rates — the caveat is that most of these offers require that consumers agree to shorter 36- or 48-month loan terms. Use your preapproved offer to compare rates and determine what makes the most sense for you.
• Think beyond your monthly payment. It's easy to have tunnel vision when it comes to monthly payments, but budgeting accordingly and being flexible with loan terms means that you could take advantage of promotional APR offers – which means paying less interest over the course of your loan. Edmunds analysts calculated how much additional interest a consumer could expect to pay on a $40,000 car loan for 72 months at 6.9% APR versus 48 months at 1.9% APR. They note that jumping from the longer, higher-rate loan to the shorter, lower-rate loan would push up the monthly payment from $680 to $866 but would save a consumer $7,392 in interest paid. Below is a table that Edmunds analysts have put together that showcases these different scenarios.
• Consider putting more money down. If you have extra cash on hand, it might be worth putting down a bigger sum to reduce the amount of your monthly payments.
• Think about interest saved as an opportunity to move up into a nicer vehicle. If you shop your rate correctly, with a favorable APR you could buy a more expensive vehicle but pay less over the life of the loan. Edmunds analysts calculated that taking advantage of a 1.9% loan for 48 months on a $45,000 purchase would cost a consumer a total of $46,767, which includes only $1,767 in interest. Compare that to financing a $40,000 purchase at 6.9% for 72 months, resulting in a total cost of $48,963 due to $8,963 in interest.

"Financing a car purchase is tricky in today's market, but if you play your cards right, financing $45,000 could cost you less over time than financing $40,000 over a longer period," said Ivan Drury, Edmunds' director of insights. "With many automakers offering highly targeted incentive programs, you might find that promotional offers will allow you to save so much in total interest paid that it might be worth switching brands or models."

Edmunds guides car shoppers online from research to purchase. With in-depth reviews of every new vehicle, shopping tips from an in-house team of experts, plus a wealth of consumer and automotive market insights, Edmunds helps millions of shoppers each month select, price and buy a car with confidence. Regarded as one of America's best workplaces by Fortune, Great Place to Work and Built In, Edmunds is based in Santa Monica, California. Follow us on Twitter, Facebook and Instagram.

CONTACT:
Talia James-Armand
Director, PR & Communications
[email protected]
310-309-4900
http://edmunds.com/about/press

SOURCE Edmunds

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