Loans for Used Cars Surged in Q3 2021
Data from Experian shows that the average used car loan has increased steadily in the past several years. However, the year-over-year increase in 2021 has soared above all expectations. The third quarter in 2021 has spiked 20.92% compared to the same period last year.
The cost of financing the loan has been increasing steadily and in large increments since 2018. While those price surges were larger than in years before, they seem small compared to 2021. The combined year-over-year increase in the last four years of 11.95% isn’t even close to the rising cost we’ve seen this year.
Since the loans are 20.92% higher, the average used car loan is $4,524 more expensive. With higher prices, borrowers are shelling out more for loans and taking out longer ones, too.
The average loan for a used car has hit a record-high $25,909, with a monthly payment of $465. This is the highest recorded average yet and comes with understandably longer loan repayment times. A borrower will now need 66.71 months on average to fully finance the car.
The only positive side is that the interest rates haven’t followed the rising trend. Currently, the average car loan interest rate has fallen to 7.89%. The same loan in Q3 2020 would have an interest rate of 8.39%. This may be caused by borrowers having better credit scores on average. An alternative explanation is that consumers with higher credit scores are turning towards used vehicles because purchasing a new car costs too much in the current market.
The COVID-19 pandemic caused many issues with the supply chain and the production and shipment of necessary components for car manufacturers. The chip shortage has been an issue for both the car and computer industries.
If the demand for used cars continues the current trend, it may be prudent to find the right car loan for your budget before the price of used vehicles rises further.
I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.