In an effort to rein in spiraling inflation, the Fed’s recent interest rate hikes are starting to be felt by dealers and consumers alike. However, distressed inventory levels could prevent the true effects of these increases on sales volume from being recognized for what they are.
The average interest rate on a new vehicle loan rose to 4.8% in May 2022. This is the highest rate since March 2020, when it was 5.3% just before the pandemic strikes. The interest rate increased by almost a full percentage point between December 2021 and May 2022.
Data collected from S&P Global Mobility and TransUnion shows that the increases affect higher credit tiers more than lower tiers. The average APR for upper-tier credit tiers increased last May compared to a year ago. However, the level of lower-tier credit has increased over the past few months, but remains the same as a year ago.
The spread between interest rates has also narrowed. The gap between the APR for the lowest and highest tier customers narrowed to 7.3 PP in June from 9.3 PP for the same month last year.
These increases have caused monthly loan and lease payments to reach four-year highs. The average loan APR in June was $686, the highest since the start of 2019. In May 2022, the average lease payment was $559, up $71 from June 2021.
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