New Vehicle Buyers in the U.S. Taking Out Longer Loans and Facing Higher Interest Rates

Financial Strain on New Vehicle Buyers

A recent study has shown that new vehicle buyers in the U.S. are facing financial challenges as they opt for longer loan terms and higher interest rates. Here are some key findings:

1. Extended Loan Terms

• New-vehicle buyers are taking out loans averaging almost 70 months.

2. Increased APRs

• The average new-vehicle APRs increased to 7.3% during the second quarter.

3. Decreased Down Payments

• Down payments for new vehicles have slightly decreased.

Rising Financial Burden

During the second quarter of 2024, the average new-vehicle APR rose to 7.3%, marking a continuous increase for six quarters. To cope with rising prices, consumers are opting for longer loan terms, with the average term reaching 69 months.

This trend is concerning as it indicates a growing financial strain on new car buyers. The average monthly payment hit an all-time high of $740 in Q2 2024, up significantly from previous quarters. The average new-vehicle down payment also dropped to $6,579, the lowest since Q3 2022.

Challenges for Used Car Buyers

Used car buyers are also facing challenges, with longer loan terms and higher APRs. In Q2 2024, the average term for a used car was 69.7 months, with an average monthly payment of $552. The APR on used vehicles increased from 11% to 11.5% compared to the previous year.

Impact on the Market

The high interest rates and financial constraints are impacting new-vehicle sales growth. Despite efforts to improve inventory and incentives, borrowing costs remain a major roadblock for buyers. The average amount financed, monthly payment, and down payment data for both new and used cars reflect the challenging financial landscape for buyers.

Positive Developments

While the financial outlook may seem bleak, there is some positive news for buyers. CDK Global, a car dealership software company affected by a cyberattack, is working towards restoring services. This downtime could lead to competitive incentives from dealers, potentially benefiting consumers.

Quarterly New-Car Finance Data (Averages)

Quarterly Used-Car Finance Data (Averages)