Car Loan Payments Are The Most Ever, Sometimes at Mortgage Levels

At this rate, nobody is going to show any interest in loans.

The average monthly payment on a new car loan hit a record high of $686 in June, according to new data from auto sales site Edmunds, up 4% from January and 13% year-over-year. With it the risk of delinquency has risen dramatically.

Thousand Dollar Stare

Call it a case of double whammy. A shortage of new vehicles caused by pandemic-era supply chain backlogs drove up car prices — in May, the average transaction price of a new vehicle was up 13% YOY to $47,148, according to Kelley Blue Book. In addition to that, interest payments are higher because the Federal Reserve is engaged in a rate-raising duel against inflation — the average annual rate on a new-car loan last month was 5.2%, up from 4.4% in February, according to Edmunds.

In short, that explains why some monthly car payments are on par with the rent for a tiny studio apartment, and why more drivers are missing payments:

• A record 12.7% of people who took out a loan on a new car last month agreed to a monthly payment of at least $1,000, according to Edmunds. That is nearly double the 7% from a year ago, and more than six times the 2% in 2010.
• Lucky Lopez, a car dealer who specializes in repossessed vehicles, told Barron’s that the share of subprime auto loans that end up as repossessions has almost doubled since 2020 to 11%. Overall, 5.36% of subprime auto loans were severely delinquent in May, 138 basis points higher than a year ago, according to Cox Automotive. Even more concerning, Lopez said, is that prime repossessions where borrowers have high credit scores is at a 4% rate, double the usual 2%.

Reverse Gear: While the volume of car loans being taken out is shifting downward, fewer loans are amounting to more debt, according to Equifax. The 6.8 million auto loans and leases taken out this year as of May were 8.9% less than the last year, but totaled $201.5 billion, a 7.6% increase in balances.

Professor’s Bad Grade: According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, which measures a median household’s ability to pay for an average-priced car, as of May it took a record 40.6 weeks to buy one. So the second you own it, there’ll be a new model out — now you know how Apple computer owners feel.