While new-car sales continue to skyrocket — the National Automobile Dealers Association in McLean, Va., predicts that close to 17 million units will be delivered to customers this year, which is the highest number recorded since 2005 — their prices likewise are heading upward. According to Kelley Blue Book in Irvine, Calif., the average cost of a new vehicle is now $33,340; that’s about $1,000 higher than it was a year ago.
And it seems Americans are going deeper into debt and for longer periods to accommodate the higher sticker prices. According to Experian Automotive in Schaumburg, Ill., longer-term new-car loans that last as long as 84 months (that’s seven years, or about four years longer than the typical new-car warranty period) now account for a record-setting 29.5 percent of all new vehicles financed.
What’s more, both the amount financed and consumers’ monthly car payments are reaching stratospheric heights as well. The average new-car loan is now up to $28,711 (likewise up by about $1,000 compared to 2014), with a payment of $488. The average interest rate for new-car loans vehicles is now at 4.71 percent, versus 4.54 percent in 2014. On top of that, Experian data indicates the average credit score required to qualify for a new vehicle loan dropped slightly over the past year, to a FICO score of 713.
Experian says this is nothing but good news as far as the car business is concerned, with increases in financing being taken as a sign of a strong automotive market, though consumers need to be careful they’re not over extending themselves in the process.
“Longer-term loans help consumers keep monthly payments manageable, while allowing them to purchase the vehicles they need without having to break the bank,” says Melinda Zabritski, Experian’s senior director of automotive finance. “However, it’s critical for consumers to understand that if they take a long-term loan, they could face negative equity should they choose to trade it in after only a few years.”
At the other end of the automotive marketplace, Experian notes that used-car financing debt is likewise continuing its upward trend — it stands at an average $18,213 per vehicle, which is up from $17,927 in 2014. Interest rates are likewise ticking upward, with the average used-car loan being financed at 9.17 percent.
If there is any good news for cashstrapped consumers it involves new-car leasing. Leasing isn’t for everyone, but with interest rates remaining low and resale values still relatively healthy, the deals are plentiful and affordable. For those who may still be new to the game, vehicle leases are largely based on the difference between a car’s transaction price and what it’s predicted to be worth at the end of the term — called its residual value — financed at a given rate of interest (though automakers will sometimes offer cheap financing, a cash rebate or other incentive to lower the monthly payment for a given model).
Lease payments have dropped over the past 12 months from an average $412/month to $405. At that, we found many popular midsize cars leasing for a monthly charge of $200 or less with a down payment in the $2,000 range; compact sedans often lease for around $150/month. If you can settle for the diminutive two-seat Smart ForTwo coupe, we found monthly payments as low as $99/month, which is less than the cost of a daily cup of cappuccino at Starbucks.
Not surprisingly, the popularity of leasing among new-car shoppers continues to grow. Experian notes that new car leasing now accounts for a record high 31.40 percent of all new models financed, compared to a still robust 30.22 percent last year.
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