Car Loan Payments are Rising, Don’t Get Caught in the Frenzy
Used car loan amounts and consequently, the monthly payments of used car buyers have risen across all consumer credit levels, with near-prime borrowers seeing the biggest increase year-over-year, according to CarsDirect. Even more disturbing is a report by Consumer Reports that found there are prime credit borrowers getting subprime loans that are costing more than they should.
Based on information from Experian’s Q3 2021 State of the Automotive Market report, CarDirect says year-over-year car payments of near-prime borrowers increased by an average of $73 a month, bringing their average monthly loan payment to $483. Monthly payments for prime borrowers rose $63 to $457, while monthly loan payments for subprime borrowers rose $71 to $486.
Used car loan amounts have increased an average of $4,552 for near-prime borrowers with credit scores between 601 and 660, putting their average used car loan amount up to $26,095. Prime borrowers are seeing even higher loans at $27,428.
A recent Consumer Reports investigation found many consumers are paying more than they can afford, putting them at risk of default. Digging deeper, the investigation found that consumers with good credit are being put in subprime loans. The investigation likewise found that lenders also rarely verified income and employment of borrowers to confirm they had enough income to repay their loan.
Auto loan delinquencies are low but expected to rise. The federal government offered forbearance to students and homeowners financially impacted by the pandemic, but not to auto loan borrowers. As stimulus money consumers receive runs out and more borrowers fall behind on their car payments, auto industry experts say there could be a sharp increase in defaults and repossessions in the coming months.
According to the CFPB, the negotiable parts of an auto loan include the annual percentage rate, length of the loan, prepayment penalty and any additional fees associated with the loan. Buyers in this current market need to be armed with as much information about financing and negotiating these terms so they can make an informed decision.
Consumer Reports quotes R.J. Cross, tax and budget advocate for the U.S. PIRG, a consumer advocacy and political organization, who said, “The price you pay and the financing you get has a lot more to do with how prepared for battle you are when you walk onto the showroom floor than your financial history.”
When in the market for a used car, stop by Carousel Preowned. Carousel Preowned serving Iowa City, Cedar Rapids, Davenport, North Liberty, Marion, and Coralville, IA, is proud to be an automotive leader in our community. We do our best to ensure your complete satisfaction every time you step into our car dealership. This is why we offer the widest selection of used and pre-owned cars, trucks, and SUVs and provide true ease of purchase in Iowa.