When shopping for a vehicle, it’s common to search for a low interest rate, hopefully to alleviate the high monthly payment, particularly now. But what happens when interest rates rise?
According to Experian’s State of the Automotive Finance Market Report: Q1 2023, the average interest rate for a new vehicle increased to 6.58%, from 4.10% the previous year, while the average interest rate for a used vehicle jumped from 8.67% in Q1 2022 to 11.17% in Q1 2023.
With interest rates rising, we’re witnessing consumers bring more cash and/or trade-in value to the transaction, resulting in the overall year-over-year (YOY) growth of loan amounts not being nearly as high as previous years.
For instance, the average loan amount for a new vehicle grew $1,213 YOY, reaching $40,851 in Q1 2023—compared to the $1,558 YOY increase from Q1 2020 to Q1 2022 and $4,255 YOY hike from Q1 2021 to Q1 2022.
Meanwhile, the YOY loan amount decreased $1,590 for a used vehicle, going from $28,010 in Q1 2022 to $26,420 in Q1 2023. This is a positive sign considering loan amounts have been increasing at a significant rate in recent years—growing $1,698 YOY from Q1 2020 to Q1 2021 and $5,619 YOY from Q1 2021 to Q1 2022.
Despite loan amounts beginning to taper off, the average monthly payments are continuing to increase as interest rates rise. In Q1 2023, the average monthly payment for a new vehicle increased to $725, from $650 the previous year and used vehicles came in at $516 this quarter, from $505 in Q1 2022.
As we look ahead at the rest of the year, it will be important for lenders to stay up to date on the latest trends in order to efficiently assist consumers when finding a vehicle that fits their financial needs.
To learn more about automotive finance trends, view the full State of the Automotive Finance Market: Q1 2023 presentation on demand.