More People Are Signing Up for $1000+ Car Payments

If you've bought a car recently and are paying more than $1000 a month for a car payment, you're among a growing number of consumers doing so.

$1000+ Car Payments

According to Edmunds.com, the number of consumers paying more than $1000 a month for their car payment continues to rise. Last fall, we shared Edmunds data that more people were paying over a $1000 for their monthly car payment.  In Q3 of 2022 that amounted to 14.3%.  Edmunds says in Q4, that number grew to 15.7% of consumers.

Higher Financing Costs, Dropping Used Car Values

The rise in monthly car payments, according to Edmunds analysts, is being driven by rising loan interest rates.  The rise in financing costs coupled with a drop in used car values, something CarPro Show host Jerry Reynolds has predicted, could spell trouble for consumers. Edmunds analysts warn that consumers who purchase a car today are at risk of going underwater on car loans down the road.

According to an Edmunds press release, financing for either a new or used vehicle is growing more expensive than ever. Here's some of the numbers:

• Interest rates are continuing to rise. 
  • Edmunds says the average annual percentage rate (APR) on new financed vehicles climbed to 6.5% in Q4 2022 compared to 5.7% in Q3 2022 and 4.1% in Q4 2021.
  • The APR on used financed vehicles climbed to 10% in Q4 2022 compared to 9% in Q3 2022 and 7.4% in Q4 2021. 
• More consumers are signing up for monthly payments of $1,000 or more. 
  • Edmunds data shows that 15.7% of consumers who financed a new vehicle in Q4 2022 committed to a monthly payment of $1,000 or more — the highest it's ever been — compared to 10.5% in Q4 2021 and 6.7% in Q4 2020.
  • 5.4% of consumers who financed a used vehicle in Q4 2022 committed to a $1,000+ monthly payment — also a record high — compared to 3.9% in Q4 2021 and 1.5% in Q4 2020. 
• Consumers are paying higher down payments to offset rising costs. 
  • Edmunds says the average down payment for new and used vehicles hit record highs in Q4 2022, climbing to $6,780 and $3,921, respectively. 
• More luxury shoppers are buying rather than leasing. 
  • Edmunds data reveals that new-vehicle leases are down 16% in Q4 2022, compared to 29% in Q4 2019.
  • Luxury new-vehicle leases dipped a substantial 26% in Q4 2022, compared to 53% in Q4 2019. 

"Just as new and used car prices finally started to cool off in Q4, rapidly rising interest rates created an even greater barrier to entry for consumers who rely on financing — which is the vast majority of car shoppers," said Ivan Drury, Edmunds' director of insights. "Although the last quarter of the year typically skews toward luxury vehicle purchases, this near-record percentage of vehicles that are being purchased rather than leased reflect tougher market conditions far more than affluent consumers shelling out a bit more than usual to treat themselves over the holiday season." 

Negative Equity

Edmunds analysts caution that the combination of costlier vehicle financing and cooling used car values could spell trouble for some consumers down the road if they do not budget or plan accordingly.

Put simply, in this market, you may not have as much equity as you think you do in your trade in vehicle.  According to Edmunds data, negative equity on trade-ins is UP year-over-year:

• 17.4% of new vehicle sales with a trade-in had negative equity in Q4 2022, compared to 14.9% in Q4 2021 and 31.5% in Q4 2020.
• The average amount owed on upside-down loans was $5,341 in Q4 2022 compared to $4,141 in Q4 2021 and $5,059 in Q4 2020. 

"Vehicle equity is really a tale of two gears for consumers over the past few years," said Drury. "At the onset of the pandemic, consumers benefited from low interest rates and elevated trade-in values, helping shield even the more questionable financing decisions from resulting in negative equity. This unique confluence of market forces resulted in some vehicle owners being able to take advantage of positive equity on their loans and even their leases. But as we shifted toward an environment with diminished used car values and rising interest rates over the past few months, consumers have become less insulated from those riskier loan decisions, and we are only seeing the tip of the negative equity iceberg."

Edmunds suggests closely monitoring vehicles' values, so you're not surprised to find out it has negative equity.

New-Car Finance Data

Note: Edmunds analysts have adjusted their auto finance data cleaning process to include new and used monthly payments up to $2,000 (previously the limit was up to $1,500) to account for changes to the market. Moving forward, this new limit will be applied to reported finance figures from January 2020 onward and may create minor discrepancies with previously reported figures. 

Quarterly New-Car Finance Data
(Averages) *

Source: Edmunds.com

Quarterly Used-Car Finance Data
(Averages)

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