The average auto loan rate has reached highs not seen in 40 years. New and used car loans are becoming more expensive, and that’s not likely to change anytime soon. We’ll delve into the latest data from Cox Automotive to better understand the true cost of buying a car today, revealing some notable trends along the way.

Buying soon? Take this auto finance cheat sheet with you.

New Car Interest Rates Average 10%

The latest numbers from Cox Automotive show just how expensive car loans have become. The average new car interest rate is now 9.95%. One year ago, this figure stood at 7%. Step back to 2021, and the average new car loan APR was around 5%.

Currently, new car loans with 0% APR constitute a mere 1.4% of the market, a major drop from one year prior. Low APR car loans, those with an APR under 3%, now represent just 5.7% of the market. This marks a substantial decrease, as low interest rate loans previously accounted for over 35% of new car loans in early 2022.

Here’s How Much Interest Buyers Are Paying

Knowing that the average transaction price of a new car sold last month was $48,451, we can calculate how much interest car buyers are signing up for when they make a purchase. This is a GREAT way to wrap your head around the TRUE cost of a car loan.

We always recommend putting 20% down when buying a car. This helps you avoid the risk of becoming ‘upside down’ on your loan, and means you’ll pay less in total interest. Let’s say today’s average buyer puts 20% down, and takes out a loan for the remaining balance ($38,761) at today’s average APR of 9.95%.

With a 60-month car loan, the average car buyer would pay a total of $10,595 in interest. In other words, the new car wouldn’t cost $48,451. After five years of payments, the car actually costs $59,046.

Used Car Rates Soar Beyond 14% APR

Pre-owned vehicles may have lower sticker prices, but the cost of financing one is much higher. In October, the average used car APR is 14.16%. That’s significantly higher than where rates stood a few years ago, when 9% APR was the norm.

Used car prices are still high. Each year, Cox Automotive tracks the annual decline in three-year-old used car values. You’d expect a 2020 model year used car to end 2023 worth a lot less than it began the year, right? This year, used car values have been declining more slowly than in years past. This is good news for those looking to sell their cars, but bad news for buyers.

Here’s a look at the most recent used car price index from Cox:

Captive Financing Grows

After years of surging popularity, credit unions and banks are losing auto loan market share. Car buyers are increasingly taking advantage of the best manufacturer financing incentives to secure the lowest rate. This sends more business to captive financing.

Here’s a look at how car buyers are financing in 2023, courtesy of Experian:

Captive financing is not inherently undesirable, as long as you get the best rate possible. Captive financing simply refers to loans provided by a subsidiary of the manufacturer, such as Hyundai Motor Finance, or Toyota Financial Services.

Fewer Buyers Are Financing

Cash is king in 2023, and this is likely to continue in 2024. Fewer buyers are financing their cars as the cost of borrowing soars. Here’s a look at the latest stats, again courtesy of Experian:

In Q2 2023, 79.7% of new cars and 38.4% of used cars were financed. This is in comparison to last year’s figures of 83.5% for new car purchases, and 41.5% for used cars.

A concerning trend is the sidelining of consumers with lower credit scores from the used car market, largely due to persistent high auto finance rates. Subprime and deep subprime used car loans now make up just 22.04% of the market, down from 29.96% in 2020. 

Overarching Observations: The Bigger Picture

It’s crucial for today’s car buyers to know what they’re getting into when signing on the dotted line. Auto finance rates haven’t been this high in two decades. Many drivers are experiencing higher monthly payments driven by soaring interest rates for the first time. Those who are caught off guard are more likely to become delinquent, and may become the target of a vehicle repossession. 

Stay informed and secure the best deal when you buy your next car with expert insights. Try CarEdge Data for behind the scenes market analysis. Looking for personalized help? Work 1:1 with a Car Coach to save the most, or have a quick chat when you schedule your first Consult call.

Buying a car doesn’t have to be miserable. Let us know how we can help you score big wins with your next ride!