The amount of the average car loan increased 8.59% over the course of 2022, according to figures released by Experian. This increase is lower than pandemic-era peaks – the cost of car loans increased nearly 22% in the year from Q3 2020 to Q3 2021 – but could still have a significant impact on consumers looking to finance a new or used vehicle.
There are two main reasons for this rise – increased car prices, and high interest rates. Since the Federal Reserve started raising interest rates at the end of last year, interest rates for many different types of loan have increased. However, there is still a lot of variation in the interest rates offered by different car loan providers, making it more important than ever to shop around.
- The price of the average car loan increased 8.59% over the course of 2022, according to figures released by Experian.
- There are two main reasons for this rise – car prices, and interest rates.
- For consumers, the rising cost of car loans makes shopping around even more important.
Car Loan Values Increased By 8% In 2022
The data released by Experian indicates that the cost of car loans is still increasing relatively rapidly. In the third quarter of 2022, the average used vehicle loan amount increased 8.59% in comparison to the same quarter of 2021. This made the average car loan in Q3 2022 worth $28,506.
An 8% increase is relatively gentle when compared to the fluctuations the car loan market has seen over the past two years. In Q3 2021, for example, there was a 21.37% year-over-year increase in the average value of car loans. It seems we’ve passed the pandemic-era peak, but car loans are still getting more expensive.
There are two main reasons for this rise – car prices, and interest rates. The price of both new and used cars increased dramatically during the pandemic, as semiconductor chip shortages slowed the production of new vehicles. This led to many consumers choosing to buy used cars, increasing demand and pushing up prices.
The other main factor pushing up the value of the average car loan is interest rates. Since the Federal Reserve started raising interest rates almost a year ago, interest rates across a wide range of credit products have followed suit, and that includes car loans. Experian found that the average interest rate during the third quarter of 2022 was 5.16% for new vehicle loans and 9.34% for used, a small but significant increase on 4.09% and 8.12% in 2021.
The combined effect of these factors has pushed the cost of a car loan across a significant milestone. The average loan amount for a new vehicle has also increased to $41,665. Combined with high interest rates, this means that an average new car loan now costs more than $700 a month.
How To Get a Car Loan
For consumers, the rising cost of car loans makes shopping around even more important. When choosing a car loan, there are four main factors to consider. Two of these we’ve mentioned above – the total amount you want to borrow, and the interest rate that your lender will charge. You should be aware, however, that additional fees and your credit score can also affect the cost of your loan.
Your credit score is particularly important when taking out a car loan (and most other forms of consumer credit). The interest rate offered to people with good credit scores can be much lower than that offered to borrowers with poor or incomplete credit histories. In Q2 2021, for example, borrowers with a credit score of 781 or higher received an average APR of 2.34% for new cars and 3.66% for used cars; those with credit scores between 601 and 660 were offered APRs of 6.61% for new car loans and 10.49% for used.
Such is the importance of your credit score when it comes to getting a good deal on a car loan, in fact, it’s almost always a good idea to check your credit report and fix any errors before even starting to look at loan terms. Only then should you shop around at multiple lenders, including big banks, community banks, credit unions, and online lenders. Make sure that you compare rates, terms, credit score requirements, and other factors that could affect the cost of your loan.