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Now Might Be The Best Time to Finance (or Refinance) a Car Loan. Here’s Why
If the thought of buying a car makes you cringe, you will be happy to know that the average interest rate for auto loans decreased for the third month in a row in December 2019. On the flip side, new vehicle prices rose, according to the automotive industry-tracking company Edmunds.
APRs Pumping the Brakes
The average annual percentage rate (APR) for new financed vehicles came to 5.4 percent in December 2019, while the average APR in December of 2018 was 5.9 percent. Even better, Edmunds data shows that 22.4 percent of consumers in December 2019 received an interest rate lower than three percent, as opposed to 20.4 percent of consumers in December 2018.
The cost of new vehicles swung in the opposite direction, according to Edmunds. New car average prices were about $38,377 in December 2019, as opposed to 2014 when prices averaged $33,773.
The holiday season can be an outlier for the automotive industry.
New Car Prices Speeding Up
The increase in new car prices is not a new trend. According to Kelley Blue Book, May 2019 average prices averaged out to $37,000 compared to $36,000 in 2018, a two percent rise from 2017. Climbing car prices can be a positive sign for the economy, but consumers have a more challenging time affording new cars.
Senior manager of industry analysis at Edmunds, Ivan Drury, says the growing costs reflect automotive cultural trends. Consumers are preferring larger cars with smarter technology such as built-in navigation, Bluetooth capabilities and advanced safety features. “The increasing amount of options that are technology-based can add up quickly if someone wants the latest,” Drury says.
Even with lower interest rates, the high new car costs are forcing more consumers to take out auto loans.
The Pew Research Center shows that wages for American workers have minimally risen over the past 40 years. Consumers rely on auto loans with an extended amount of time to pay them back. This allows consumers to make smaller monthly installment payments, but they pay more interest in the long run.
The credit reporting company Experian says that in early 2019 more than a third of auto loans for new cars involved terms of greater than six years.