More than 17% of drivers with new cars pay upwards of $1,000 each month. (iStock)
The auto industry is slowly becoming more affordable and monthly payments for new vehicles average $735 as of the first quarter. Although this is still high, it’s a slight decline from the previous quarter, Edmunds reported.
Used vehicles also have lower average monthly payments. These payments dipped to $546 at the beginning of 2024, down from $561 in the fourth quarter and from $551 in the first quarter of 2023, according to Edmunds’ report.
And many drivers are still choosing high monthly payments well over the $735 average. More than 17% of new vehicle buyers took on payments above $1,000 in the first quarter, marking the fourth consecutive quarter that the percentage of drivers was equal to or higher than 17%.
"Punxsutawney Phil may have predicted an early spring, but high interest rates continued to cast a dense shadow over the car market in Q1," Edmunds Head of Insights Jessica Caldwell said in the Edmunds report.
"Compelling new product launches combined with the reintroduction of incentives and rebounding inventory in the new vehicle market are all positive signs for shoppers, but elevated interest rates have dampened any positive market momentum," Caldwell said.
The average APR for new vehicle loans remained high at 7.1% in the first quarter. Used-vehicle APRs also rose, this time by one-tenth of a percentage point since last quarter to 11.7%.
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Auto insurance rates continue their march upward
Auto insurance rates are driving higher monthly auto costs. The motor vehicle insurance index rose 2.6% in March after rising 0.9% in February, the U.S. Bureau of Labor Statistics (BLS) reported.
The index aligns with customer reports of spikes in their monthly insurance premiums. Nearly 31% of auto insurance customers faced a rate increase in 2023, a J.D. Power report found. Rates increased by 15.5% on average.
Rates rose largely due to the losses auto insurance companies are facing. In 2022, insurers lost an average of 12 cents on every dollar they collected in premiums, the J.D. Power report said. This loss is still affecting current rates and customers’ attitudes towards their insurers.
"Overall customer satisfaction with auto insurers has plummeted this year, as insurers and drivers come face to face with the realities of the economy," Mark Garrett, J.D. Power director of insurance intelligence, said.
"While insurers are caught between a rock and a hard place when it comes to balancing profitability with customer experience, there are several ways they can blunt the negative effects of rising costs, such as proactively offering customers UBI alternatives, clearly signaling and explaining necessary rate increases and consistently delivering on brand promises to instill trust," Garrett said.
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The auto industry appears to be on the mend
Cars are becoming more affordable, even if auto insurance isn’t. Monthly loan payments are decreasing as average new vehicle loans decrease, making it easier for some buyers to afford vehicles.
In the third quarter, a new vehicle loan averaged $40,184, down from $41,543 in the third quarter of 2022, Experian’s State of the Automotive Finance Market Report found. The average used vehicle loan also decreased to $27,167 from $28,684 in 2022.
A decrease like this signals the market is trudging toward recovery, considering that in the third quarter of 2022, loans for new vehicles increased by nearly $3,700 while used loans increased by $2,379.
Used vehicles had a particularly difficult few years during the pandemic, but prices are now dropping at dealerships. Wholesale prices decreased by 1.9% from March to the first few weeks of April, Cox Automotive reported.
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