Mapping Responsible Car-Buying in the U.S. | Edmunds

Mapping Responsible Car-Buying in the U.S.

Lessons Learned From the Savviest States


Cars are getting more expensive. Interest rates for new vehicle purchases have hit highs not seen since before the 2008 recession. Loan terms stretch to nearly six years or even longer, a sign that shoppers are straining to handle the double whammy of rising prices and higher interest rates.

To get a sense of how American car buyers are adapting to this changing environment, the Edmunds industry analysis team researched transaction and finance data for buyers nationwide and has ranked all 50 states in order of those whose residents exhibit the most — and least — responsible car shopping behavior.

Connecticut, Massachusetts, Rhode Island, Michigan and New Jersey lead the country in responsible car shopping behavior.  Oklahoma, Mississippi, Alaska, Arkansas and New Mexico hold down the last five spots on the list.

The map below shows all the states' rankings. Click on the image to open a full-size version.

Mapping Responsible Car-Buying in the U.S.

What 'Car Shopping Responsibility' Means

The Edmunds analysts used insights gleaned from more than 842,000 vehicle transactions between May and September of 2018 to define "car shopping responsibility." They analyzed four components in each state:

  • The average percentage of trade-ins with negative equity (where the owner owes more on the trade-in car than it is worth)
  • The average amount owed on negative equity trade-ins
  • Average loan length
  • Average auto loan interest rates

The analysts ranked each state within each individual metric and then gave each state an overall aggregate score.

The highest-ranking state, Connecticut, scored top marks across the board in terms of lowest share of trade-ins with negative equity (10 percent), lowest amount owed on trade-ins ($4,500), shortest average loan term lengths (64.2 months) and lowest annual percentage rates (APRs) of 4 percent.

New Mexico ranked lowest in the nation, with the second-highest share of transactions with a negative equity trade-in (32 percent), the second-highest amount owed on "underwater" vehicles ($6,600), the second-highest average APR of 7.1 percent, and the longest loan terms in the nation: 72.4 months on average.

What Makes Top-Performing States Different?

It's not how much money people have, or the overall economic conditions in their state, that determines responsible car-buying behavior, according to the Edmunds analysts. It's the amount of time shoppers spent using car shopping calculators on Edmunds. That had a more direct correlation on responsible shopping behavior than any other indicator the analysts studied.

According to Edmunds site data, shoppers from the top five states typically spent 55 percent more time on Edmunds calculators than those from the bottom five. The calculators help shoppers determine car-buying budgets, compare the effect of varying interest rates, and assess the value of their current car for trade-in or sale. They also allow for shoppers to take into account factors beyond just the purchase price.

"While some states have unique environmental conditions or regional preferences that may impact purchasing decisions, the primary driver behind responsible shopping is simply how informed shoppers are and how much they do to prepare before they even step foot into the dealership," said Ivan Drury, Edmunds senior manager of industry analysis. "Responsible car-shopping behaviors vary from state to state, but on the balance, these differences are not driven holistically by economic factors or income levels."

Unique State Patterns

A state's dominant business, its vehicle mix and even weather all play a part in how people shop and how much they can afford, the analysts found:

  • Michigan, which ranks fourth overall in the nation, has one of the lowest statewide average annual percentage rates for car loans: 4.5 percent. Edmunds experts said that a contributing factor is the prevalence of "friends and family" discounts offered in Michigan by the Detroit-based automotive industry.

  • California ranked 11th overall in responsible shopping. But the average negative equity there is $5,600, which is higher than nearly half of the states. Edmunds analysts say California's mix of trade-ins could be the culprit. Cars — as distinct from trucks and SUVs — account for 55 percent of all trade-in vehicles in the state. Given the interest in trucks and SUVS and the declining demand for traditional cars, Californians are likely finding that their cars are worth less than they anticipated at trade-in.

  • North Dakota, South Dakota and Montana have the highest positive equity in the nation: $13,600, $12,400, and $9,900, respectively. That's far higher than the national average of $6,900. Edmunds analysts point to the high concentration of trucks in these states as the major factor. Pricey trucks drive up residual values, which create more favorable trade-in rates.

  • Arizona, Alaska and New Mexico, which rank 45th, 48th and 50th on the list, may be hurt by extreme weather conditions such as intense heat and cold. Edmunds experts note that these conditions could affect purchase cycles, forcing residents from these states to trade in vehicles sooner than usual — before the owners have had a chance to gain equity in their cars.

How to Shop Smarter

The Edmunds analysis offers some insights for all car shoppers. Here are the things responsible car buyers do — no matter where they live. Follow their example: 

  • Get preapproved for your car loan. Interest rates are steadily on the rise, so it's important to shop around and see what different credit options might be available to you. Preapproval is the closest you can come to the perks of paying with cash while not having to save up for months or years in advance.

  • Put at least 10 percent down. While a 20 percent down payment is ideal, it's also difficult for most people to handle. Edmunds recommends combining a down payment of around 10 percent with gap insurance or new-car replacement coverage. That lets you keep more money in your pocket without the risk of being underwater on your car loan.

  • Keep loan terms shorter. As you plan your financing, Edmunds recommends a loan term that's no longer than 60 months, despite the national average hitting 69 months in September. Higher interest rates are a major reason to stick with a 60-month loan: The longer the term, the more interest you will have to pay on the loan, both in terms of the rate itself and the finance charges over time.

  • Consider leasing. If you know that you experience "car fatigue" and don't plan on driving your vehicle until its wheels fall off, consider leasing instead.

  • Consider residual values when purchasing a new vehicle. Right now, the market heavily favors trucks and SUVs, which are retaining significantly higher values compared to their car counterparts. You might get a great deal on a sedan right now, but if you're planning on trading it in sooner than five years from now, you might owe more than what it's worth.

"While there are certain things about shopping for a car that are out of your control, like your budget or needs, being smart about your research is something every consumer can do," said Matt Jones, Edmunds senior consumer advice editor and former car salesman. "Buying a car is a significant investment that can affect your financial stability for years to come, and you can avoid falling into the negative equity trap if you're mindful about a few key things up front."

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