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Edmunds: Auto Loan Interest Rates Climb Back to Pre-Recession Levels

October 3, 2018

SANTA MONICA, Calif. — High interest rates continued to put pressure on new vehicle sales in September. Analysts with Edmunds point to an increase in the average down payments for new vehicles, a steep drop in zero percent finance offers, and a contraction of loan terms as evidence of tightening conditions.

According to the firm, the average annual percentage rate for new-vehicle financing in September was 5.8%. That’s up from 4.8% in September 2017 and 4.1% five years ago. Interest rates have stayed above 5% for eight months now, mirroring APRs seen prior to the Great Recession.

"The trickle-down effect of elevated interest rates really started hitting car shoppers in September," said Jeremy Acevedo, Edmunds' manager of industry analysis. "While new vehicle prices continue to rise, favorable credit offerings are growing increasingly more difficult to come by. Buying conditions are far less amenable for consumers than they were before, which might come as a shock for shoppers coming back to the market for the first time in a few years."

According to Edmunds, the average down payment for a new vehicle soared from $3,817 in September 2017 to $4,198. Five years ago, the average down payment was $3,555.

Additionally, the availability of zero percent finance offers dropped from 10.1% in September 2017 to 5.6% last month — the lowest September level since 2005. Average loan terms also contracted from 69.4 months in September 2017 to 68,7 months this past September — the lowest level this year.

Edmunds experts added that the Federal Reserve’s interest rate hike last month is a harbinger of worsening market conditions heading into the fourth quarter.

“The higher Fed effective rate means we can expect to see interest rates continue to inch up as we head into the rest of the year,” said Acevedo. “While strong economic factors like low unemployment rates and high consumer confidence have helped sustain healthy sales levels so far amid less favorable conditions, cheap and easy credit is really what shoppers zero in on when purchasing a new vehicle. As credit offerings grow more rigid for consumers, automakers are facing increased pressure on new vehicle sales through the end of the year."

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