Anyone in the market for a vehicle in the last few years can attest to how difficult it was to make a purchase or to get into a new set of wheels without waiting a few months. With supply chain issues causing delays in receiving a vehicle, inflation bringing up the cost of cars and interest rate hikes leading to higher monthly payments on auto financing, it has been a stressful time for those looking to get behind a new set of wheels.
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Here’s a look at how many Americans are making car payments, along with how much they’re paying on their auto loans.
More Than 40% of Americans Have Car Payments
According to a recent survey of over 1,000 Americans conducted by GOBankingRates, 40% stated that they had a car monthly payment. Of those who admitted to having car payments, 46% said they were spending between $301 to $500 monthly.
Here are some highlights from the survey:
- About 4% of those with car payments paid over $1,000 monthly.
- Almost a quarter of those with car payments paid under $300.
- None of the people over 65 had car payments of over $1,000, while 7% of those between 35 to 44 did.
- Over 50% of the respondents aged 25-44 or 65 and over were paying between $301 to $500.
- Most men (45%) and women (47%) with car payments paid between $301 and $500 monthly.
See: Buying a New Car Under $20,000? Here Are Your Best Options
Why Are Car Payments So High?
Car payments feel higher than ever due to various contributing factors. Here are the main issues impacting auto payments:
- The Fed has raised interest rates to cool the economy. This means that you’re spending more money on your monthly loan payments, since you’re paying more in interest. With many of these auto loans starting at 6%, it’s no secret as to why car payments are up. When you factor in the higher vehicle price with an increased borrowing rate, it becomes clear why Americans are spending so much in this category.
- Supply chain issues made it difficult to get cars delivered to customers, which brought the supply down and increased demand. This original increase in auto prices began in 2020, and it was assumed that supply chain issues caused this due to the COVID-19 pandemic, when consumer spending habits shifted. The original inventory issues led to the prices of vehicles going up. Car inventories eventually caught up in 2022, but the prices haven’t decreased.
How Much Are Americans Spending On Car Payments?
These survey results are similar to data that has come out about Americans and car payments. The Consumer Financial Protection Bureau revealed in 2022 that auto loan debt had reached $1.5 trillion in the U.S., with over 100 million Americans having car debt. According to Experian data, the average auto loan size shot up 7.7% in 2022, to $22,612. More recently, the average monthly payment for a new vehicle is $729, while the average payment for a used car is $528. These monthly car payments don’t factor in the other expenses associated with owning a vehicle.
Based on the data and the survey results, more Americans than ever are spending more money on car payments. Based on Kelley Blue Book data, the typical price of a new car has been hovering around $48,000. At the beginning of the year, Edmunds shared that almost 15% of those who purchase a new vehicle were paying over $1,000 monthly, while 5% of those who financed a used vehicle were doing so. These were both record highs at the time. The percentage of buyers who have a monthly car payment of over $1,000 has gone up to 17.5% in the third quarter of 2023.
The survey results and data confirm that Americans are spending a record amount of money on monthly car payments. If the Fed doesn’t start to bring down interest rates, then it’s unlikely that monthly car payments will be reduced in the near future.
What Should You Do?
This is one of those situations where there’s no perfect solution. Here are a few questions to consider before purchasing a vehicle.
Can You Afford The Monthly Payments?
With interest rates rising, you have to think twice before adding to your expenses. Bloomberg recently reported that a record amount of Americans were falling behind on their car payments due to rising interest rates making the payments unaffordable. The most recent data from Fitch Ratings discovered that 6.1% of subprime borrowers were now delinquent on their auto loans as of September, the highest number ever recorded since 1994.
With inflation bringing up the cost of nearly everything, car payments have become another stressful expense that’s difficult to keep up with.
According to Edmunds, the average new auto loan rate shot up to 7.4% in September, which is up from the 6.9% figure at the beginning of 2023. Regarding used cars, the average loan rate reached 11.4%. This means that you have to reconsider your options and have some difficult conversations about affordability. When you purchase a vehicle, you also have to factor in insurance costs, fuel, parking, maintenance and wear and tear.
Can You Delay This Purchase?
With inflation and the possibility of a recession looming over us, many people have had to make difficult decisions about delaying significant purchases. With interest rate hikes from the Fed and car loan rates going up, you have to ensure that this is the right time for you to invest in a vehicle. If you can delay your car purchase to focus on saving up, you’ll be in a better financial situation.
Can You Improve Your Credit Score?
The most important question to ask yourself is if you can improve your credit score. When you run the calculations, you’ll discover that every interest point significantly affects how much you spend on car payments and the loan size. With car loan rates at such highs, you have to do whatever you can to fix your credit score to get the best rate possible.
This means that you should continue to make payments on time, build a credit history and work on improving your overall finances. There’s no easy solution here, since it could take some time to build your credit score if it isn’t where you want it to be, but it’s worth taking the time to do so.
Closing Thoughts
With so many Americans having car payments, it’s crucial that you understand what you’re getting yourself into before you make a purchase. You will have to look at your various financing options to see what makes sense for your situation. You don’t want to put yourself in a difficult financial situation by taking on an expense you can’t afford.
GOBankingRates surveyed 1,021 Americans aged 18 and older from across the country between Oct. 12 and Oct. 16, 2023, asking twenty-three different questions: (1) How much did you spend on your pet in the last year?; (2) How much have you spent/are you planning to spend on Halloween this year?; (3) How much money do you spend on kid-related activities in a year?; (4) How much do you spend on average on your monthly utility bills (electric, heat/gas, water)?; (5) What spending/saving habits have you had to change in the last year due to inflation/rising prices? (select all that apply); (6) What was the biggest unexpected expense you had this year?; (7) How much do you currently spend on monthly car payments?; (8) Do you live in a single-income or dual-income household?; (9) In the past year, did you have to take on a side gig because of rising prices/inflation?; (10) How much do you bring home from your side job(s) each month?; (11) How much have your overall expenses gone up in the past year?; (12) What is your top financial priorities to end 2023?; (13) What is the top way you’ve earned your money/gained wealth?; (14) Have you started financially preparing for 2024?; (15) How much have you spent on home upgrades in 2023?; (16) How will the resumption of student loan repayments affect your budget?; (17) How much do you currently owe in student loans?; (18) How much do you spend on yourself (not including housing, food, etc.) out of each paycheck?; (19) How much do you spend on online purchases per month?; (20) Where do you shop for groceries most often?; (21) Do you shop around for groceries to get better deals?; (22) What are you currently invested in? (Select all that apply); and (23) What is the current value of your stock investments?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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This article originally appeared on GOBankingRates.com: More Than 40% of Americans Have Car Payments: Here’s How Much They’re Paying
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