"Consumers who want to save where they can must think about the big picture when it comes to financing their car purchase. "Most car shoppers tend to have tunnel vision when it comes to their monthly payments and their knee-jerk reaction is to stretch out their loan terms to make pricier purchases a bit more palatable, but that's a huge risk to take when cars are already selling above MSRP and interest rates are so high," said Ivan Drury, Edmunds' director of insights. They note that jumping from 5% APR at 72 months to 1.9% APR at 36 months would push up the monthly payment by $500 to $1,144 but would save a consumer $5,200 in interest paid overall. Edmunds data shows that 9.3% of financed new car purchases had an average loan term of 48 months or less in Q3 2022, compared to 4.5% in Q3 2020 when low interest rates and longer loan terms were a carrot for pandemic-weary shoppers.Įdmunds analysts calculated how much additional interest a consumer could expect to pay on a $40,000 car loan for 72 months at 5% APR versus 36 months at 1.9% APR. Consumers heading into the car market may be aware of high prices but also need to brace themselves for a different experience in the F&I office."Įdmunds analysts note a small uptick in shorter loan terms in Q3, which they say is reflective of more car shoppers taking advantage of subsidized interest rates offered by automakers. "With new vehicle purchases, automaker subsidies offer a bit of relief, but even those are far less generous than before. "High prices and rising interest rates are dealing consumers a one-two punch by catapulting monthly payments into a new realm," said Jessica Caldwell, Edmunds' executive director of insights. 14.3% of consumers who financed a new vehicle purchase in Q3 2022 committed to a monthly payment of $1,000 or more
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