Car Notes Are at All-Time Highs

Car Notes Are at All-Time Highs

Hal M. Bundrick

That new ride is taking your budget with it. Average vehicle loans and monthly car payments are at all-time highs, according to an industry report by Experian Automotive. And it’s not just new cars that are getting increasingly pricey.

The average used vehicle loan was $18,258 as of the second quarter of this year – an increase of $345 from 2013. That means the monthly payment is fatter too: typically over $350.

“Used vehicle financing has experienced consistent growth over the last several years,” said Melinda Zabritski, senior director of automotive finance for Experian, in a release. “As we continue to see the price of vehicles reach new heights, more and more consumers, especially those that are credit challenged, are turning to the used vehicle market as a viable option to purchase their next car.”

New vehicles are seeing average loans of $27,429 – toting a note of $467. Leases are back, too. After a period of time when the industry shied away from the lending alternative, leases accounted for a record high 25.6% of all new vehicle transactions through the second quarter.

New car loan interest rates are up to an average of 4.59% while used vehicles carry an average rate of nearly 9%. Lenders are looking for higher credit scores, too: 711 for a new vehicle; 717 for a lease.

All of this means consumers need to make smarter purchases in order to prevent further pain to their pocketbook. Here are six ways to save on your next vehicle purchase:

  • Don’t go into the showroom “upside down.” That’s when you owe more on your trade-in than the vehicle is worth. Dealers often say they will “pay off your car no matter how much you owe,” but the Federal Trade Commission says such promotions can be misleading. Fact is, the balance due will be added to your new vehicle’s loan and cost you even more interest in the long term – as well as a higher car note.
  • Special loan rates, such as 0% financing, can be a good deal but often the costs of such promotions are built into the price of the car. You’ve heard the phrase “rebates assigned to dealer,” right? It’s a good idea to shop local lenders and have a pre-approved loan in your back pocket before you head to the dealership. That way you can negotiate as a cash buyer and compare finance rates later.
  • When you are ready to buy – new or used – do a little research on the specific make and model you are looking to drive off the lot. Online resources like Kelley Blue Book, Edmunds and the National Automobile Dealers Association can show you detailed cost information on specific vehicles, including the options you are most interested in.
  • Negotiate the price, not a monthly payment. Dealers can vary the length of the loan and the interest rate to meet a target monthly payment but concentrating on the bottom-line price of the car first will result in a smaller loan and a lower note.
  • Shopping at the end of the month – when dealers are looking to meet sales targets – can mean a motivated sales force, and perhaps a little bit of a better deal for you.
  • And look to avoid local dealer “add-ons.” These are “options” that have been added to the vehicle since its arrival at the dealership. Fabric sealants, added vinyl trim, undercoating, and VIN etching are examples.