- Auto loan interest rates can be up to 15% higher for borrowers with poor credit.
- Buyers must have good credit to take advantage of financing specials.
- Car loan interest rates for cars range between 5.18% and 21.32%.
During the COVID pandemic, car buyers had to wait for months for new cars to arrive on dealership lots. Because new cars were few and far between, used car prices skyrocketed. Now that lots are full of new and used cars, interest rates have risen to shocking levels. It seems as though the car-buying public cannot get a deal.
Supply Chains, Shut-Downs, and Interest Rates
For three years, the automotive industry has traveled an unexpected path that included pandemic shutdowns, supply chain issues, and price add-ons. Now that supply chain issues and add-ons are slowing, car buyers have to deal with new car interest rates between 5.18% and 14.08% and used car interest rates between 6.79% and 21.32%.
The shocking interest rates will not abate as the Fed raised interest rates again at the end of July. According to CNBC, the latest quarter-percentage hike set borrowing costs to the highest level in over 22 years.
While several car manufacturers have decided to lower car prices, new car prices are still incredibly high. According to Kelley Blue Book, the average new car price in June was $48,808. Prices were higher in December 2022, but not by much. The average price of a new EV in June 2023 was $53,438.
Car Payments Over $1000
Edmunds published a fascinating collection of statistics about auto loan rates and monthly payments. According to the site, between 9.2% and 29.5% of car buyers have monthly car payments over $1000. For one car. The states with the highest percentages are Wyoming and Texas, while the states with the lowest percentages are Connecticut and West Virginia. Many of the Mountain West states also have high percentages of people with car payments over $1000.
Unfortunately, the statistics do not include details about what types of vehicles are involved, but several sites claim the top vehicle sold in Texas in 2023 is the Toyota Camry followed by the Ford F-150.
Manufacturers Offering Discounts
Fortunately, manufacturers are taking notice. And, they should, especially as new and used cars are sitting unsold on their dealership lots.
Kia EV6 Deals
I recently bought a 2023 Kia EV6 and had a choice of financing and cash-back options. Kia is offering a $7,500 cash bonus to shoppers who lease a new model, and sales teams are pushing the lease deal, instructing buyers to get the lease, enjoy the $7,500 off, then refinance after making the first payment. Kia is also offering 0.9% for 48 months, but you cannot use other cash-back offers.
The automaker is also offering two cash-back deals on EV6 models: $1,000 cash back on the GT AWD and $5,000 cash back on any EV6. We took advantage of the $3,750 cash-back offer in July and used our own financing.
Discounts on Hyundai, Subaru, and Ford EVs
Hyundai, Subaru, and Ford are also offering financing deals in August. Hyundai is offering 0.99% APR financing for 48 months on the IONIQ 5 and IONIQ 6. Like Kia, Hyundai also offers the same $7,500 cash-back lease deals on the two EVs.
Hyundai is also offering an exceptional lease deal on the 2023 Kona EV with $3,999 down and $269 for 36 months. Subaru is offering 0.9% financing on the Solterra. Ford is offering 2.9% financing for 60 months on the 2023 Mustang Mach-E, and 3.9% for 60 months on the F-150 Lightning.
Making Sales in Creative Ways
Other manufacturers with electric vehicles or hybrid-electric vehicles are getting creative. For example, Stellantis is offering no payments for 90 days on a new Jeep Wrangler 4xe. In April, Tesla lowered the prices of new vehicles, dropping the Model Y below $40,000.
AutoNation Mobility just began a new micro-leasing program with six or twelve-month leases. Shoppers can choose 800, 1000, or 1,200 miles per month, and they get roadside assistance, routine maintenance, and a comprehensive warranty during the micro-lease. This new program helps buyers get a new car without having to worry about high-interest rates and long-term leases. This program is only available for drivers in South Florida and Southern California, but if it proves worthwhile, other lenders will get on board.
Pay Attention to Your Credit Score
If you must finance a new or used car, it’s important to get your finances in order. Your credit score matters more than ever before, as your vehicle’s interest rate is completely dependent on that three-digit number. People with poor credit could have interest rates 15% higher than people with top credit scores.
Manufacturer finance specials only go to people with good credit, and some lenders have reduced their auto financing, because of high auto loan rates, skyrocketing monthly payments, and risky borrowers.
Supply and Demand
The old rules about supply and demand don’t seem to apply to the automobile market at this time. Instead, car shoppers are bound by interest rate hikes. Dealerships seem stuck as the high rates and steep credit score requirements aren’t helping them empty their lots.
It seems as if car buyers cannot catch a break, especially if they’ve been car shopping between 2020 and now. You had to get lucky to find a new car before spring 2023, and now that the lots are full, you have to decide between a $1000 car payment or emptying your savings to buy a new car.
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