People financing new cars are paying a higher average monthly payment than ever, according to information released by Experian. The average car payment reached $523 in the first quarter of 2018. Experian came up with that figure after pulling numbers from over 4.7 million automobile loans.
Although that figure might seem high, the average new car, truck, and SUV purchase amounted to $31,453 – the highest amount on record, which is partially the reason for the high monthly payment. However, the interest rates have also risen which was predicted for June, contributing to the higher monthly payment as well. The year-over-year average interest rate went up 31 basis points, to a total of 5.17 percent, CNBC reported.
Compared to last year, that figure increased by $15. It used to be easy to find a new car or truck payment for under $500. Today, that number is harder to hit unless a larger amount of money is put down on the purchase.
Along with the higher interest rates and purchase price, borrowers are financing for longer periods than ever before on auto loans. In the first quarter, the average loan was for five years and nine months, according to Experian’s data. This would technically reduce monthly payments, but it may be a sign that consumers are opting to spend more on their car purchases in order to avoid a high monthly payment.
Even with the monthly payment on the rise, Americans overall are actually doing better when it comes to staying current with their loan payments. The number of 30-day delinquencies dropped in the first quarter to a rate of 1.86 percent of all the loans held. The 60-day delinquency rate was 0.66 percent, showing borrowers attempt to catch up after missing one loan payment.
However, auto loan lenders are still hesitant to give loans to subprime or deep subprime borrowers. The loans awarded for new vehicles to subprime lenders dropped 8.4 percent. The news was even worse for those in the deep subprime category –loan volume decreased by 14.1 percent.
Despite the high sticker prices on the vehicles and the increasing interest rates, borrowers aren’t being turned off from buying new cars. 17 million new vehicles sold in the first quarter of 2018. While that number has slightly dipped from prior years, industry experts still consider it to have been a strong quarter.
How to Get an Affordable Monthly Car Payment
If $523 a month is more than a borrower can afford to pay or more than a borrower wants to pay, they do have some options for a lower payment. Understanding how much to spend on a car is a key starting point for deciding your budget for a car purchase; it also pays off to look at all your options, new or used.
A consumer can reduce monthly payments by going with a used car instead of a new car. A new vehicle depreciates the minute it’s driven away from the dealership, but the auto loan doesn’t depreciate. A used car is simply a cheaper alternative to a new car, and a lower asking price means lower payments. That’s what makes a used car such a bargain – buyers can save thousands on a vehicle simply by letting someone else pay the full price to use it first.
If a borrower doesn’t want a used car but doesn’t want to pay such a large monthly payment either, they can opt to put a larger sum down on a vehicle. While that can drain the bank account, it could still lead to a beneficial loan situation. Some auto loan lenders will reduce the monthly payment and potentially the interest rate on an auto loan with a larger down payment.