17% Of Car Buyers Are Paying Over $1000 Car Payments

The number of car shoppers paying more than $1,000 a month for their car payment continues to climb. It hit an all-time high in the second quarter of 2023 according to the data crunchers at Edmunds - reaching 17.1%. That's up from 16.8% in the first quarter of the year. Compare that to four years ago and your jaw just might drop. In Q2 of 2019 it was just 4.3%.

2023 Q2 Auto Financing

Edmunds researchers say the culprit of record-high financing prices is elevated interest rates.  Here's a look at the Q2 data as shared by Edmunds:

• The share of consumers who financed a vehicle with a monthly payment of $1,000 or more reached a new all-time peak of 17.1% in Q2, up from 16.8% in Q1 2023 and 4.3% in Q2 of 2019.
• Average monthly payments also reached a new record high of $733 in Q2, up from $730 in Q1 and $678 in Q2 2022. 
• The average annual percentage rate (APR) ticked up a tenth of a percentage point to 7.1% in Q2, compared to 7.0% in Q1 and 5.0% in Q2 2022.  7.1% is the highest APR sine Q4 2007.
• The average amount financed remained above $40,000 for the fifth straight quarter, settling at $40,356 in Q2, slightly below Q1 2023's mark of $40,468 and $40,602 in Q2 2022.

"The double whammy of relentlessly high vehicle pricing and daunting borrowing costs is presenting significant challenges for shoppers in today's car market," said Ivan Drury, Edmunds' director of insights. "The Federal Reserve's recent pause in interest rate hikes unfortunately didn't offer much relief for consumers, and hints at further raises later this year mean auto loan rates could even continue to increase."

Loan Term Lengths 

Ok so let's look at loan term lengths for those paying the $1,000+ monthly payments.  Researchers says there are two distinct subgroups: 

• 64.5% signed up for an average loan-term range of between 67 and 84 months and an average APR of between 8.5% and 9.6%. Edmunds analysts say this group is made up of consumers who are paying thousands of dollars toward interest vs. principle and could find themselves upside down on their auto loans down the road. 
• 15.6% signed up for loan term lengths between 31 and 48 months and a 2% to 4.8% APR. Edmunds analysts note this latter group is likely made up of savvy consumers who are taking advantage of subsidized finance offers, which typically consist of lower-rate but shorter-term loans. On a typical $40,000 loan, consumers with a 2.9% APR over 36 months can expect to save $8,500 in finance charges compared to those with a 7.9% APR over 72 months.

"There are better ways and worse ways to spend $1,000 per month on a car note," said Drury. "Consumers who are paying large amounts of finance charges could be in jeopardy of falling into a negative equity trap, so it's critical to come to the table with a comprehensive budget and a feel for the financing elements of a car purchase beyond the monthly payment, including the APR. For those with plans to replace their vehicle over the next few months, you may have to reset any expectations of the summer discounts of old. But, on a positive note, trade-in values remain elevated compared to prepandemic times, so shop around to ensure you get top dollar for the asset you own."

Here's a closer look at the numbers provided in an Edmunds' press release:

Quarterly New-Car Finance Data
(Averages)

Quarterly Used-Car Finance Data
(Averages)

Photo credit: O P Creative/Shutterstock.com.