Vehicle Interest Rates Are Getting More Manageable

Some good news if you're planning to shop for a new car soon. While new vehicle monthly payments and down payments set records in the fourth quarter of 2024, Edmunds says it sees some encouraging signs when it comes to auto financing. Analysts say auto loans became more manageable in Q4 due to lower interest rates.  They also cite the return of incentives as inventory as progress for consumers.

New data from Edmunds reveals: 

• Lower APRs became more available for longer term loans in Q4. Edmunds says the notable rise was heavily influenced by December figures, a sign that there are more incentives in the market. 
• The share of new-vehicle sales with 0% APR financing ticked up to 2.3% of sales in Q4 from 1.1% in Q3. Edmunds also shares that the Q4 increase also came at an average term length of 54.3 months, up 9.5 months from Q3 and the highest term length since Q4 2021, when 7.1% of loans featured 0% APRs at an average term length of 56.8 months.
• Even still, monthly payments and down payments on new vehicles hit new record highs in Q4 2023. Edmunds reports that monthly payments climbed to $739, up slightly from the previous record last quarter of $736 and from Q4 2022's mark of $717. Down payments crossed the $7,000 threshold for the first time, up to $7,074 from $6,907 in Q3 and $6,780 in Q4 2022.
• The share of consumers with new-vehicle monthly payments of $1,000 or more reached a new record once again. The share increased to 17.9% in Q4, up from 17.5% in Q3 and 15.7% in Q4 2022. Of note, Edmunds says Q4 figures are more heavily influenced by luxury sales than other quarters.
• In the used vehicle market, average APR and down payments from Q4 are also record highs. In terms of used vehicles, Edmunds says APRs climbed to 11.6% on average, topping Q3's average of 11.2% and 10% from a year ago.

"On the surface, car financing appears to be following the harsh trend line of the past few years, with average monthly payments and down payments reaching all-time highs for new vehicles," said Jessica Caldwell, Edmunds' head of insights. "But there are some very encouraging signs as we kick off 2024 when considering the makeup of deals in the latter half of Q4 2023. Incentives are slowly coming back as inventory improves. Most consumers are looking for low APRs with longer loan terms, so the growth in those loans is helpful to lure consumers who have been sitting out due to adverse financing and pricing conditions." 

Edmunds says its analysts reviewed new-vehicle loan details from transactions throughout 2023 and discovered that lower APRs became more available for longer term loans as the year went on:

• In June, APRs between 0% and 3.99% were found on loans with an average term length of 50 months. By December, loans featuring these low APRs were available at an average term length of 56 months, a half-year increase.
• 0% APRs in particular represented an even greater increase of 16.3 months from 2023's midpoint (40.5 months) to close (56.8 months).

"While shorter term loan deals are still most common with low APR financing, it is encouraging to see more reasonable term lengths becoming more prevalent with APRs below 4%," said Ivan Drury, Edmunds' director of insights. "Finding these deals still requires a bit of work, however. If you've declared any New Year's resolutions involving less screen time, you might need to make an exception for online car shopping, especially if other resolutions include tightening your spending."

Here's a look at the Edmunds data.

Quarterly New-Car Finance Data - 
(Averages)

Quarterly Used-Car Finance Data
(Averages)