Rising interest rates and higher sticker prices on new vehicles have pushed shoppers to put up near-record down payments on cars and trucks in May a bid to reduce their monthly bill.
Last month, shoppers spent an average of $3,801 upfront on a new vehicle, a 6.5% increase over a year ago. The trend held steady for used vehicle purchases, with shoppers spending $2,529 on average, up 3.8% from last May.
The increase is due to rising new car prices as well as a general consumer predilection toward cars equipped with more expensive technology, safety, and luxury options. “New car prices are rising due to increased content but consumers are willing to pay for those increases, which is paramount,” said Jessica Caldwell, director of industry analysis at Edmunds. “Technology features like Apply CarPlay and safety features such as rear back up cameras have gotten consumers to willingly spend more money.”
Historically, shoppers tend to spend the most money upfront in December as they hunt for luxury vehicles and pickup trucks, which boast higher transaction prices and require larger down payments. The industry’s record-high average down payment soared to $3,951 in December 2012. Following December 2013 and December 2016, May posted the fourth-highest average down payment on record, a spike unusual for springtime.
Meanwhile, average monthly payments and loan terms for new car purchases are also on the rise. The average loan term for new vehicles is now $510 per month for 69.1 months, compared with $503 for 68.3 months last year. The loan terms for used vehicles have remained flat at $385 per month for 67 months, according to data from Edmunds.
“Buyers want pricier cars with more bells and whistles, leading to the troubling trend of trading longer loan terms for lower monthly payments,” Caldwell said. “But now that interest rates are also on the rise, something has to give. In our increasing credit-based culture where consumers are willing to finance everything from cellphones to vacations, more money up front shows car buyers aren’t completely sacrificing practicality in order to get the cars they really want.”