New Vehicle Loans are Getting More Expensive as Interest Rates Rise

Interest rates on new vehicle loans are at their highest level since 2009, with March recording a second consecutive month of sharp rate increases, according to analysts at Edmunds.

The annual percentage rate (APR) on new financed vehicles averaged 5.7 percent in March — compared to an average of 5.2 percent in February and 5 percent in January. This compares to 5 percent in March 2017 and 4.4 percent in March 2013.

Edmunds explains that a strong decrease in zero-percent loans fueled the rise in average loan rates. The percentage of zero-percent loans will drop to 7.4 percent in March, compared to 11.4 percent in 2017, Edmunds estimates. Big automakers are shifting to different incentive structures to address slowing sales, Edmunds says.

“Some of the largest volume brands like Chevrolet, Ford, Nissan and Toyota are demonstrating the largest drop in zero-percent loans year over year,” said Jessica Caldwell, executive director of industry analysis at Edmunds. “This goes to show how the cost of lending has become increasingly more pricey, and zero-percent financing, while still a desirable incentive, no longer adds the same wow factor for consumers like it used to.”

Edmunds also attributes the rise in rates to a significant decrease in the number of loans in the 2 to 4 percent APR bracket, and an increase in the 4 to 7 percent range. The number of 2 to 4 percent loans accounted for 8.9 percent of the market, compared to 14.1 percent a year ago. The percentage of 4 to 7 percent loans accounted for 34.5 percent of car loans compared to 27.6 percent last March, a sign that buyers are continuing to land in higher brackets than they previously would have.

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