Supply chain issues, high demand, inflation, and limited inventory caused average monthly car payments to reach a record high in May.
According to a report from Moody’s Analytics, the typical monthly car payment hit a high of $712.
For months, both new and used car prices have been spiking due to a number of issues.
How much did car payments increase in this new record high?
To be exact, estimated monthly payments increased by 1.7% to $712. Cox Automotive & Moody’s Analytics vehicle affordability index report states that it would take a total of 41.3 weeks of median income to buy a new vehicle — an increase of 19% from May 2021.
The market has become increasingly challenging for buyers because of interest rate hikes and continued supply chain issues. Last month, the average annual percentage rate (APR) for new vehicles climbed to 5.1%.
Based on a report from Edmunds.com, a vehicle research company, this was the highest rate seen since the beginning of the pandemic.
Buyers will be paying over the sticker price
Any car bought now will have the consumer paying over the MSRP. Kelley Blue Book data shows non-luxury buyers paid an average of $1,030 over the sticker price. Luxury buyers paid $1,071 over the price tag.
But regardless of price hikes, luxury cars are still being sold and are in high demand. While many people are opting for smaller and economical cars due to inflation, a historical high of 17.3% of consumers are purchasing luxury vehicles.
Moody also states that buyers can find good deals on cars made by Mazda, Hyundai, and Buick because those brands are less sought-after.
The Fed recently raised interest rates – how will the car market be affected?
On Wednesday, The Fed raised interest rates by 0.75%, making all loans more expensive. This means rates for mortgages, credit cards, and car payments will be higher.
Consumers have relied on low interest rates as a way to get into better cars. Coupled with limited inventory and high demand, the recent interest rate hike will cause car prices to continue to rise.
Brian Moody, executive editor for Kelly Blue Book, offers hope that car prices will decrease later this year.
“Although prices are up for May, it’s only 1%, and so that indicates … we may be headed toward a place where the prices will start to decrease,” Moody said.