Thu Apr 12, 2018 10:00am EST
As new-car loan interest rates spike to their highest point since 2009, Edmunds editors offer detailed tips to help shoppers safeguard their wallets against rising prices
Car-buying platform Edmunds.com serves nearly 20 million visitors each month. With Edmunds.com Price Promise(R), shoppers can buy smarter with instant, upfront prices for cars and trucks currently for sale at over 10,000 dealer franchises across the U.S. (PRNewsFoto/Edmunds.com)
Car-buying platform Edmunds.com serves nearly 20 million visitors each month. With Edmunds.com Price Promise(R), shoppers can buy smarter with instant, upfront prices for cars and trucks currently for sale at over 10,000 dealer franchises across the U.S. (PRNewsFoto/Edmunds.com)

SANTA MONICA, Calif., April 12, 2018 /PRNewswire/ -- Consumers who may be considering freshening up their driveway with a new car this spring may experience sticker shock if they're heading to the dealership for the first time in a few years, according to the car-shopping experts at Edmunds. Thanks to a combination of rising interest rates, longer loan terms and higher average transaction prices, Edmunds experts say on average, a buyer could pay more than $6,500 to purchase a new vehicle than they did five years ago.

During the first quarter of 2018, interest rates on new-vehicle loans grew sharply each month, culminating in an annual percentage rate (APR) average of 5.7 percent in March 2018, compared to 4.4 percent in March of 2013. On top of that, the average amount financed reached $31,020 compared to $26,533 in 2013 and loan terms have stretched to 69.5 months compared to 65.7 months five years ago.

These added costs are amplified for car buyers with subprime credit. According to Edmunds experts, subprime car shoppers could easily face twice the average APR on a new-vehicle loan. For example, a subprime buyer who had to pay 11.4 percent in interest would have finance charges of $11,501 over the life of a 69.5-month loan, an increase of $6,027 over the average interest rate.

"The rise in interest rates impacts car shoppers across all credit tiers," said Matt Jones, senior consumer advice editor at Edmunds. "Consumers will need to adjust their expectations on what they can now afford because they may not qualify for the same interest loan rates they did five years ago."

To help buyers safeguard their wallets against higher interest rates, Edmunds editors created an insider guide for car shoppers in the market for a new set of wheels.

If you have good credit:

  • Consider leasing: Interest rate hikes do affect leasing, but since the total lease amount is a fraction of a new car's sale price, you will still pay less every month. Edmunds leasing advice remains the same, regardless of interest rates: Look for lease specials, keep the down payment low and be mindful of the mileage limits.
  • Find a car that has a low-APR offer: While there are far fewer zero-percent interest offers than in the past, it doesn't mean they've dried up completely. If you're willing to keep an open mind toward brands and models that you might not be familiar with, you can still get a great financing deal.

If you have poor credit:

  • Consider buying a used car: Used-car interest rates, while typically higher than new-car rates, have remained relatively stable over the past five years. And since a used car is generally less expensive than a new one, you're more likely to get financed and still have a lower monthly payment. Just be mindful of the length of the car loan: An 84-month loan on a used car means you could have a very out-of-date vehicle on your hands by the time you pay it off.
  • Fix up your car while you fix up your credit: In some cases, the best thing to do may be to maintain your current vehicle while you work on your finances. If you can keep your vehicle running for another year or so, it will allow you to save up more for a bigger down payment (which will whittle down the amount you need to finance). You also can use the time to work on improving your credit. Run a copy of your credit report to see which items need attention. In general, you'll want to pay off debt with the highest finance charges first.

Edmunds experts note that shoppers thinking about buying a new car should not feel pressured to move up their purchase timing to avoid further increases in interest rates.

"While interest rates are rising, this doesn't necessarily mean that you have to buy a car right now," said Jones. "The best time to buy a car is when you need one and only after you have completed your research."

About Edmunds 
Edmunds is the leading car information and shopping platform, helping millions of visitors each month find their perfect car. With products such as Edmunds Your Price, Your Lease and Used+, shoppers can buy smarter with instant, upfront prices for cars and trucks currently for sale at more than 13,000 dealer franchises across the U.S. Edmunds' in-house team of unbiased car-shopping experts provide industry-leading vehicle reviews and shopping tips. The company also hosts a 20-year-old forums community that connects members to other car shoppers and enthusiasts. The company is regarded as one of America's best workplaces by Fortune and Great Place to Work. Edmunds is based in Santa Monica, California, and has a satellite office in downtown Detroit, Michigan.

CONTACT:
Talia James
Senior Manager, Public Relations
PR@Edmunds.com
310-309-4900
http://edmunds.com/about/press

 

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SOURCE Edmunds

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