It’s getting more expensive to buy a new car or truck. Not only are automakers raising prices on vehicles, but the interest rates on auto loans have soared to a ten year high.
Last month, the average rate for a new car auto loan was 6.26%. That’s up more than 1% compared to a year ago, and well above the average rate from five years ago.
“So if someone’s coming back into the market after maybe years ago paying a 1.9 percent rate which was quite common, and now they’re up to five percent,“ said Jessica Caldwell with Edmunds.com. “That is a big monetary difference.“
Why is costing more to borrow money for an auto loan? One factor is the federal reserve raising interest rates, which in turn is pushing up rates on all types of loans. It’s also forcing automakers to pull back on offers for zero percent financing. Meanwhile, both dealers and lenders are much more selective about who qualifies for the lower rate loans.
Even though buyers are being forced to pay more, it’s not stopping them from choosing more expensive trucks and SUVs.
“People right now are pointing up and essentially still continuing to buy these cars, although we do think that there is some caution ahead in terms of how long this can last,“ Caldwell said.
And as auto loan interest rates have increased, an increasing number of buyers are being forced to consider leasing, instead of buying a new model.
While interest rates may not be much lower, in general, monthly lease payments are about $100 lower than auto loan payments.