SANTA MONICA, CA — June 30, 2022 — Financing a new vehicle purchase is growing more expensive for consumers, according to the car shopping experts at Edmunds. New data from Edmunds reveals:
- The average annual percentage rate (APR) on new financed vehicles in Q2 2022 climbed to 5% for the first time since Q1 2020.
- 12.7% of consumers who financed a new vehicle purchase in June 2022 committed to a monthly payment of $1,000 or more — the highest level that Edmunds has on record — compared to 7.3% in June 2021, 4.6% in June 2019 and 2.1% in June 2010.
- The average amount financed for new vehicles hit a near-record level in the second quarter of 2022, climbing to $40,602 — compared to $39,726 in Q1 2022 and $36,215 in Q2 2021. Edmunds analysts note that the first and only other time that the average amount financed for new vehicles surpassed $40,000 was Q4 2021, when the average APR was just 4.1%.
- An influx of luxury shoppers are turning their backs on leasing and choosing to purchase their new vehicles. Edmunds data reveals that new-vehicle lease penetration fell to 18.5% in June 2022, down from 30.5% in June 2019.
"Low interest rates used to be one of few reprieves for car shoppers amid elevated prices and supply shortages. But the Fed rate hikes this year are making finance incentives far costlier for automakers, and consumers are starting to feel the pinch," said Jessica Caldwell, Edmunds' executive director of insights. "Although there appears to be a steady stream of affluent consumers willing to commit to car payments that look more like mortgage payments, for most consumers the new car market is growing increasingly out of reach."
To help guide car shoppers, Edmunds analysts calculated how much additional interest consumers can expect to pay over the course of a $40,000, 72-month car loan. They note that jumping to a 5% APR from a 4% APR would cost consumers $1,324 more in interest over the course of the loan. Jumping to a 6% APR from a 4% APR would cost $2,672 more.
"A single percentage point increase might not seem like much at first blush, but that adds up to hundreds, if not thousands, of dollars over the course of a 72-month (or longer) loan — a significant cost considering consumers are financing as much as ever," said Ivan Drury, Edmunds' senior manager of insights. "Seeking out finance incentives was less necessary during recent years in which finance rates had been low, but shopping around for lower APR offers from dealers or third parties could make a difference in today's market."
Edmunds analysts also note that consumers are opting for loans with longer terms to make monthly payments more palatable. Edmunds data reveals that 36.1% of consumers who financed a new car purchase in June 2022 opted for a loan term of between 73 and 84 months, compared to 32.8% in June 2021.
"Consumers are exploring every possible avenue to make their next vehicle purchase affordable, and longer loan terms are a good example of that, even if that choice poses risks considering vehicle wear and tear and greater negative equity (the amount by which their loan balance exceeds their vehicles' value) as their vehicle ages," said Drury. "The best moves shoppers can make are staying as informed as possible and not relying on car financing strategies of old — because buying a car in 2022 is a whole different ball game."
Edmunds experts advise that consumers calculate the total amount they are planning to finance in their next purchase by using the Edmunds Auto Loan Calculator, which factors in sales price, tax rates, title and registration, trade-in values, financing terms and more.
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.
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Edmunds guides car shoppers online from research to purchase. With in-depth reviews of every new vehicle, shopping tips from an in-house team of experts, plus a wealth of consumer and automotive market insights, Edmunds helps millions of shoppers each month select, price and buy a car with confidence. Regarded as one of America's best workplaces by Fortune and Great Place to Work, Edmunds is based in Santa Monica, California, and has a satellite office in Detroit, Michigan. Follow us on Twitter, Facebook and Instagram.