The average monthly car loan payments are on the rise, surging upwards of $600, as an increasing number of consumers switch back to financing new vehicles, according to Experian’s latest auto financing report.
During the last three months of the 2020 fiscal year, consumers borrowed almost $2,000 more for new vehicles, spending on average $35,228, according to Experian’s State of the Automotive Finance Market report.
This pushed their monthly bill from about $13 to upwards of $576 during that period, according to Experian.
“The events of 2020 disrupted the automotive industry and we’ve seen some consumers shift away from patterns that have been cemented over previous quarters such as opting for used vehicles,” Experian senior director of automotive financial solutions Melinda Zabritski, said.
This change can be attributed in part to "stimulus checks, carry-over incentives and tight inventory," Zabritski added.
However, the credit bureau noted that the higher monthly payments are likely due to the continued interest in larger vehicles such as pickups and SUVs. More than 50% of new vehicles financed in the last three months of 2020 were small and mid-sized SUVs, according to Experian.
Meanwhile, those in the market for used cars also spent more. The average loan amount for used vehicles also grew from $20,824 to $22,467 compared to a year earlier. The average monthly payments for these used vehicles surpassed $400 for the first time, notching $413.
And while consumers are shelling out more on loans, the interest rate for both used and new cars have dropped significantly compared to a year earlier.
The average interest rate for new-vehicle loans dropped from 5.25% to 4.31% while the average interest rate for used vehicles dropped from 9.05% to 8.43%.
According to Zabritski, affordability will still remain a concern for industry leaders.
“With the increases in average loan amounts and payments, affordability will continue to be an important topic to pay attention to, particularly as market conditions continue to develop in 2021,” Zabritski said.
In order to make sure the industry keeps moving forward, "lenders and dealers need to rely on data to ensure that they have the right options to fit consumers’ needs," Zabritski added.