If you’ve been on the hunt for a new or used car in the past couple of years, the high prices caused by the global shortage of microchips (and therefore car stock) is a grim reality. Thanks to the data collected by the experts at Edmunds, we can see how serious the situation is. In a nutshell, monthly payments are up and the amount financed is up, both in part because luxury buyers are turning to finance rather than leasing. Interest rates, on the other hand, are down slightly, offering buyers a rare glimmer of hope in today’s auto-buying climate. Here’s what the data tells us.
The average monthly payment for a new car is $ 636
Just under a third of buyers chose to lease their vehicles in the fourth quarter of 2019 – the last pre-COVID quarter. Since automakers are generally less likely to offer attractive rental rates in these times of high demand and limited supply, buyers are choosing to finance rather than lease their new vehicle. The lease penetration rate fell to 23% in the fourth quarter of 2021.
This particularly affects luxury buyers, as the low monthly leasing payments make these vehicles more accessible. But a combination of reduced rental incentives and relatively low interest rates (a drop from 4.4% in Q3 2021 to 4.1% in Q4) means that luxury buyers are increasingly looking for more. ease with financing a vehicle purchase. For example, the percentage of BMW buyers financing – rather than leasing – their new car rose from 33% in Q4 2020 to 42% in Q4 2021, while Mercedes-Benz financing numbers fell from 29% to 44% during the same period. Lexus noted the most significant change, with 26% of buyers opting for financing in Q4 2020, up from 45% in Q4 2021.
More buyers financing expensive luxury vehicles naturally increase the average monthly payment for a car. That figure stood at $ 581 in the fourth quarter of 2020 – a number roughly equivalent to the fourth quarter of 2019 (as noted, the last pre-COVID quarter). But the vehicle shortage was in full swing in 2021, pushing monthly payments to $ 614 in the third quarter of 2021. That rose to $ 636 in the fourth quarter of 2021, the highest average monthly payment ever recorded by Edmunds. These numbers coincide with an average down payment increase, from $ 5,394 in the third quarter of last year to $ 5,780 in the fourth quarter. Bottom line: Buyers spend more upfront and every month afterward. Fortunately, the average finance term holds around 70 months, so at least our data doesn’t show buyers are making these payments work by extending the repayment period.
All other things being equal, an increase in the overall average monthly payment may suggest a rise in prices or interest rates, or a general move towards more expensive vehicles. However, in this case at least, the change appears to be driven by luxury buyers choosing to finance rather than lease their new vehicles.