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Interest rates on new vehicle loans in April continued at higher levels not seen since 2009. The annual percentage rate (APR) on new financed vehicles averaged 5.6 percent, according to data by Edmunds, a vehicle information and shopping platform.
This represents the third consecutive month that rates have jumped above 5 percent. It noticeably exceeds a 5 percent average APR from April 2017 and a 4.2 percent average APR from April 2013.
“With more potential Fed rate hikes ahead, we don’t expect to see these higher vehicle ownership costs retracting unless automakers are willing to dig much deeper into their pockets,” said Jessica Caldwell, executive director of industry analysis for Edmunds in the press release.
Naturally, since the average APR rose, the Edmunds team also found consumers’ pocketbooks were taking hits in other places.
In April 2018, the average monthly payment on new vehicles averaged $535 compared to the previous April’s $509 and April 2013’s $463. The average amount financed rose to $31,318 which beats $30,315 in April 2017 and $26,679 in April 2013. Down payments also increased in April, reaching $3,911 and exceeding $3,770 and $3,494 in 2017 and 2013, respectively.
With auto costs trending higher, how can consumers get lower interest rates from today’s current options?
Clean up credit report errors: Good credit increases the chances for lower car loan rates. Reviewing a free copy of one’s credit report (which you can get from one of the three major credit bureaus) can help you spot errors in need of correction, and it can also help you spot identity theft. If the report shows a history of late payments, cut back on spending, set a budget, and pay off the debt. Fixing credit report errors and paying your bills on time can help you build stronger credit.
Put down larger down payments: Lenders will be wary to open a car loan for buyers with bad credit, but putting down a larger down payment can strengthen an application and show a commitment. An ideal down payment for a new car is 20 percent, but the average down payment in 2017 was 12 percent, an Edmunds report showed. A higher down payment means you may have lower monthly payment, due to lower interest.
Shop around: The biggest lenders are the large banks including Bank of America, Chase, or Wells Fargo, but they aren’t the only place to obtain an auto loan. Deals can be found from “captive” finance companies belonging to automakers, including Ford Motor Credit and Toyota Financial Services. And there are also credit unions, local banks, and online banks. Shop around at these places – but before doing so, have a budget ready, do research on the different auto lenders, and come prepared with questions. It’s important to know what you’re getting into when taking on an auto loan.
Author: Andrew Rombach
Andrew writes engaging and informative content for readers looking to find information about topics such as student loans, credit cards, personal loans, and small business financing. Andrew’s work has been featured in Market Watch, Bankrate, The Penny Hoarder, and the Lacrosse Tribune.