Yahoo Finance Why Car Payments Are Skyrocketing in 2024
If you’re a car owner, you’ve probably noticed that car payments are higher than they’ve been in years past. It’s not just your imagination. In fact, as CNBC reported, the average car payment grew from $535 in May 2019 to $760 in May 2024 — a 40% increase.
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Here are three reasons car payments have significantly increased.
High Prices
One of the primary reasons for the increase in car payments is simply higher car prices. Over the past few years, there has been a steady rise in vehicle costs, with some popular models seeing an average increase of 19% or more within the past five years.
The global supply chain crisis during the COVID-19 pandemic is a leading cause of the price increase for many vehicles. Factories were shut down, placing production behind. When operations opened back up, essential components, like semiconductors — which are necessary for modern vehicles — became increasingly scarce.
Due to the limited supply and high demand, dealers didn’t need to offer special incentives to customers as much.
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High Interest Rates
Another significant factor contributing to high car payments is rising interest rates. As the Federal Reserve continues to keep interest rates relatively high, auto lenders are also increasing their rates, making it more expensive to finance a car purchase. Today, auto loan rates are just above 9.5%, per MarketWatch. With longer loan terms becoming the norm, consumers end up paying more in interest over time.
Negative equity is another issue. With the high cost of new cars, many car owners are trading in their vehicle to get a newer model. However, with the rapid depreciation of cars, many find themselves owing more than their car is worth. This negative equity results in higher loan amounts and higher monthly payments for a new car.
Demand for Fancy Cars
In recent years, there has been a surge in demand for luxurious vehicles, particularly SUVs and pickup trucks. These types of vehicles tend to have higher price tags, leading to increased car payments. Buyers are opting for more features and customization options, driving up the overall cost of these luxury cars. As a result, the demand for these vehicles is not only causing car prices to rise but also impacting monthly payments.
Looking to the Future
It’s clear that there are multiple factors at play when it comes to the increase in car payments in 2024. But the good news is that U.S. production has gone back up and car prices have gone down slightly. Dealers are also offering more incentives for new car buyers, so it’s important to shop around, maintain a good credit score and compare offers.
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This article originally appeared on GOBankingRates.com: Why Car Payments Are Skyrocketing in 2024
