Car shoppers with limited budgets are being priced out of the market for new vehicles.
In the first three months of 2023, interest rates on new car loans climbed to the highest level since 2008, according to the latest insights from Edmunds.
“So, we’re now at really unfavorable – and kind of hostile – rates for buyers if they’re in the market for a new car,” auto market analyst Joseph Yoon said.
Interest rates reached 7% during the first quarter of 2023, according to Yoon, who said borrowers are facing costs that haven’t been seen since the Great Recession.
In the greater Tampa Bay region, those in need of an auto loan are facing even steeper interest rates. At 7.29% for a new car, interest rates in the cities of Tampa, St. Petersburg and Sarasota exceed the national average, according to Edmunds.
To avoid paying so much in interest, Yoon said that some car shoppers are reducing the life of their loan.
“Sure, you’re saving money on the interest rate, and it’s going to be noticeable over the life of the loan,” he said. “But your monthly payment will be double.”
Around one in six borrowers paid $1,000 or more on their monthly car payment between January and March, according to Edmunds.
Yoon noted that not every buyer can afford that.
In general, he said the auto market is becoming less forgiving for car shoppers on a month-to-month budget.
In a recent report on the growing unaffordability in the U.S. market, Edmunds executive director Jessica Caldwell writes about the “disappearance of the $20,000 new vehicle in America.”
Effectively zero percent of new vehicles sold in March were $20,000 or less compared to 8 percent of vehicles five years ago, according to the report.
Caldwell said the growing demand for SUVs with the latest technology and the introduction of electric vehicles are driving the industry-wide shift toward higher prices.
This means many working individuals and families will be priced out of the new car market, driving the demand – and the cost – for used vehicles even higher.
“Cars aren’t getting any cheaper at the moment. If the interest rates remain super high then the only place that buyers can get a break is if manufacturers start offering discounts again,” Yoon said.
The Federal Reserve raised interest rates by a quarter point in March.
With at least one more rate hike expected this year, Yoon said relief is not yet in sight for those in need of an auto loan.
Gabriella Paul covers the stories of people living paycheck to paycheck in the greater Tampa Bay region for WUSF. She’s also a Report for America corps member. Here’s how you can share your story with her.