The monthly cost of a vehicle payment has never been higher. According to recent data, the Average auto payment for new vehicles was a record-breaking $700 in the third quarter of 2022. Recent payments have increased year-over-year by double digits, making the cost of a monthly payment tighter for families all across America.
While increasing interest rates by the federal government have played a role in these higher monthly auto payments, that’s not the only contributing factor. Increased demand for bigger vehicles, including SUVs and pickups, has also fueled rising costs. Not to mention, the introduction of electric vehicles brings with it higher automotive costs compared to traditional compostable engines. And with their recent introduction to the market, drivers who want to get behind the wheel of an electric vehicle typically have no option but to shop new.
Melinda Zabritski, Experian’s Senior Director of Automotive Financing, shared in a report with Forbes Magazine, “Larger vehicles like SUVs comprised more than 60% of new vehicle financing, with no signs of slowing down, so average monthly payments continue to reach new highs. This continues to be compounded by supply and demand challenges, which has also caused spikes in average loan amounts and monthly payments.”
With these rising costs in auto payments, drivers have understandably begun exploring different avenues for automotive financing. Credit unions, online lenders, and unique dealership programs have all helped change the landscape of auto financing.
Credit Unions Gain Traction
The popularity of credit unions has grown over the past couple of years, with borrowers looking to purchase a new or used vehicle helping to drive this growth. Credit unions typically offer lower rates than traditional banks and are often more flexible with loan options. According to recent data, credit unions offered the lowest average interest rate for borrowers looking to buy a used vehicle at 7.03% compared to traditional banks, which offered 9.34%. “Lower interest rates were the main driver in the growth of credit union market share. In many cases, credit unions were offering interest rates a full percentage point lower than other lenders,” shares Zabritski. With these added options, even borrowers seeking car loans with bad credit can qualify for decent rates in today’s market.
Online Financing Shakes Industry
Online financing companies, including Auto-Fi and Caribou, have made a name for themselves as worthy contenders in the financing space. As they compete with traditional banks, they are able to offer consumers competitive rates that make overall loans more affordable than they once were. For many, this means a bigger budget to work with, allowing them to bump up to the bigger SUVs and pickups that have gained dominance among drivers. In addition to more competitive rates, customers can get an auto loan experience that is much more streamlined, convenient, and time efficient. Analysts highlight that in some circumstances, these online-based lenders even work in tandem with car dealerships to make car buying easier.
Drivers Look for Relief in the Current Market
While it’s unclear how these different lenders, alongside rising interest rates, will impact the auto market as a whole, what is clear is that drivers continue to seek relief. As inflation continues to be unstable and the cost of living struggles to keep up, drivers are looking for a break anywhere they can get it. For many, this might be the perfect opportunity to explore creative auto financing options.
This post may contain affiliate links. Meaning a commission is given should you decide to make a purchase through these links, at no cost to you. All products shown are researched and tested to give an accurate review for you.
