Despite expectations of a return to normalcy, new car buyers’ inventory remains tight, exacerbating the situation.
Car buyers are facing unprecedented challenges as the effects of the pandemic and supply shortages continue to drive up prices, defying traditional economic principles
The Detroit Free Press reveals that nearly 20% of car buyers are now shelling out more than $1,000 per month for their vehicle, with the average monthly payment surpassing $700. Data from Edmunds highlights the lengths car buyers are willing to go to acquire a new car. However, the situation has become a double-edged sword for car buyers, while dealers and automakers rejoice in record profits. A lingering chip and parts shortage, coupled with a lack of railcars to transport finished vehicles to dealerships, have created a perfect storm. To make matters worse, the vehicles available on dealer lots tend to be expensive, fully loaded-models with high-profit margins for automakers.
Dealers, often perceived as unnecessary middlemen, are taking advantage of the scarcity by adding markups and costly extras with each new model release. Consequently, car buyers are finding themselves financially strained in their pursuit of car ownership.
Edmunds’ analysis reveals that car buyers paying over $1,000 per month fall into two groups
Those bordering on financial irresponsibility and those facing dire circumstances. The former comprises nearly 65% of consumers, who have opted for loan terms ranging from 67 to 84 months and an average annual percentage rate (APR) between 8.5% and 9.6%. These car buyers are effectively paying a substantial portion of their payments toward interest rather than the principal, potentially leaving them owing more than the car’s value in the future.
The latter group, accounting for approximately 16% of consumers, has chosen loan terms between 31 and 48 months, with an APR ranging from 2% to 4.8%. However, the challenges extend beyond these car buyers groups, as the average monthly payment in the second quarter of 2023 reached $733—a $55 increase compared to the same period in 2022. Moreover, average APRs have risen to 7.1%, representing a 2.1% surge from the previous year and marking the highest APR since the fourth quarter of 2007. Although the average financing amount has slightly decreased to $40,356, a drop of $246 compared to a year ago, car buyers continue to face significant financial burdens in their quest for car ownership.
READ ALSO: SNAP Benefits Will Begin To Be Distributed In These 3 States Tomorrow
Leave a Reply