Consumers have been concerned about the affordability of vehicles for some time now. Rising prices for new vehicles combined with a constant stream of interest rate hikes have made buying a new vehicle a more expensive proposition until recently.
It appears that new and used vehicles are becoming more affordable as new and used vehicle loan amounts dropped in the third quarter.
New vehicle prices have been going down for a while, but also noticeable is the fact that the average new vehicle loan amount in the third quarter fell to $40,184 from $41,543 for the year-ago period.
The average used vehicle loan amount went from $28,684 to $27,167 year-over-year, according to Experian’s State of the Automotive Finance Market Report: Q3 2023. It suggests the market is stabilizing, reversing a trend from Q3 2021 to Q3 2022 when loan amounts jumped $3,698 for new vehicles and $2,379 for used vehicles.
Other factors
Despite the lower amount borrowed, the average monthly payment for the quarter rose slightly to $726 from $701 last year at this time. Used vehicle payments rose as well, although it was a mere $4 a month to $533.
Additionally, the average interest rate for a new vehicle went from 5.26% in Q3 2022 to 7.03% in Q3 2023, and the average rate for a used vehicle increased from 9.38% to 11.35% in the same time frame.
Despite taking out smaller loans, monthly payments rose $25 a month during the third quarter.
Change in strategy
For a long time, consumers were shopping for a monthly payment, so extending the loan term was popular. In fact, 84-month loans were the fastest-growing segment of the finance market. Not anymore.
In Q3 2023, new vehicles with up to 48-month loan terms increased to 13.40% from 9.99% in Q3 2022. Additionally, new vehicle loans with 49- to 60-month terms went from 16.50% to 17.16% year-over-year, and new vehicle loans with 61- to 72-month terms reached 38.65% this quarter, from 36.67% last year. On the contrary, new vehicle loans with 73- to 84-month terms decreased from 35.11% in Q3 2022 to 29.15% this quarter.
It’s notable that loans up to 48 months offered an average interest rate of 4.03% in Q3 2023, while the average rate for 49- to 60-months was 5.67%, followed by 61- to 72-months at 7.24%, 73- to 84-months at 8.80%, and 85+ months at 8.81%.
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