Although the cost of new and used automobiles has decreased recently, having a car is becoming a more costly proposition overall. (Photo: Mario Tama/Getty Images)
Although the cost of new and used automobiles has decreased recently, having a car is becoming a more costly proposition overall. This is due to rising auto-related expenses, such as interest rates on auto loans and insurance premiums.
In February of this year, the average interest rate on a six-year vehicle loan increased to 8.41% from 6.97%, according per the latest statistics released by the Federal Reserve Bank of St. Louis.
Meanwhile, according to the U.S. Labor Statistics Bureau, vehicle insurance prices increased by 22.6% between April 2023 and April 2024. Those percentages add up to hundreds of extra dollars per month on a car.
Impact of Interest Rates and Gas
Rising auto loan rates have cast a dense shadow over the car market so far this year. Rates have climbed so much that the average buyer will now pay an additional $10,668 in interest payments over the life of their loan. In 2021, that figure was $6,418.
Due to clients' preference for strolling dealership lots in the warmer months, the activity related to car sales usually increases in the spring and summer. But what should be a profitable season for automakers is beginning to be threatened by vehicle loans and insurance costs.
The cost of gas and routine auto maintenance, such as rotating the tires and changing the oil, is further straining household finances. According to a March Bank of America poll, two of the hardest household costs for Americans to pay are auto maintenance and loans.
Because of rising loan rates, the average age of automobiles, trucks, and SUVs in the United States continues to rise, reaching a record of 12.6 years in 2024.
According to Bank of America's poll, "given these higher 'all in' automotive costs, it could be that some consumers are holding out for newer inventories or waiting for auto prices to fall further before purchasing." This could account for owners' lengthier car ownership.
Dealerships will still sell a lot of cars this year, to be sure, but consumers are becoming more informed about where to get financing and how much auto insurance will cost, according to Caldwell. According to U.S. sales figures released by manufacturers earlier this year, the number of new car sales in the country increased by about 5% between January and March.
Cars.com reports that the average price of a new automobile was $491,111 in May, which is 1.5% less than it was a year earlier. Per Cars.com, the average price of a used automobile was $28,910, which was 6.3% less than the same month last year.
According to Caldwell, prices have decreased as a result of automakers increasing their inventory and dealerships reintroducing more incentives in an attempt to draw in customers.
However, Americans are finding it difficult to make their auto payments even as costs decline. According to data released by the New York Federal Reserve in February, an increasing number of vehicle owners have become delinquent on their auto loans. As of February, Americans owed $1.6 trillion in vehicle debt, an increase of $55 billion over the previous year.
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