Rising Financing Costs

Car prices have gone up since the COVID pandemic. The CPI says prices are up 22%. The average new car price actually sold is up 40%. The most consumer-relevant way of measuring car prices should be the average monthly payment…since this is the actual price the consumer needs to pay. Interest rates on new and used vehicles have risen by more than 40% since the beginning of the pandemic. The average used car interest rate is almost 12%!

Tightening Financing Conditions

While interest rates are rising, auto loan defaults are increasing as well, which is driving banks to cut back on auto lending. As a result, car buyers are needing to increase their down payments and cut the term of the loans.

Monthly Payments

Even though interest rates have gone up more than 40% since the beginning of the COVID pandemic, the tightening of financial conditions means that the average monthly payment is up 32% for new cars and 37% for used cars. That is a lot more than the 22% increase in the CPI figures.