Auto Loan Balances Rise Alongside Car Prices

During the pandemic, both new and used car prices increased because to problems with the global supply chain and rising production costs.

According to the consumer price index, used car prices increased by 38% in 2021, while new car prices increased by 14% during similar time, according to Kelley Blue Book.

The average transaction price for new cars reached a record high of $49,507 in December 2022, a rise of more than $8,000 in only two years, despite the fact that used car prices have been progressively declining in recent months.

It should not be a surprise that vehicle loan balances have climbed as a result of the sharp rise in car costs. Over the last ten years, the amount owed on outstanding auto loans has doubled, hitting an all-time high of $1.55 trillion in the fourth quarter of 2022.

According to data from the Fed, interest rates for 60-month loans for new cars have grown from 4.82% in 2021 to 6.55% at the moment.

Due to the recent increase in vehicle loan rates, it may be challenging to reduce your debt in the current rate environment.

To lower your interest rate and pay off debt faster, you might be able to refinance your auto loan at a shorter period, but doing so may result in higher monthly payments. A long-term auto loan should be avoided, though, as they tend to lose value more quickly than other secured assets like residences.

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