The prices to buy a new car in the United States have skyrocketed in recent years. Between rising price tags and interest rates, Americans are having a harder time affording their personal vehicles.
According to the Wall Street Journal, for the average American to be able to pay off a new car, it would require 42 weeks of income, up from around 33 before the pandemic. Higher interest rates have also made the car buying situation difficult.
While the pandemic paved the way for automakers to increase prices due to supply chain issues, those hikes are still being practiced today. According to the Journal, General Motors noted last month that the average price its buyers paid rose 3% quarter over quarter to $52,000.
According to Cox Automotive data, used car prices are up 30% from pre-pandemic levels where the average price for pre-owned is $27,000.
The average monthly payment on a loan for a new car is over $750 with an interest rate of 9.5%. For used cars, the average rate is above 13.7%, according to Cox. The average term for loans issued over the past three years is 72 months, according to data from Experian.
These numbers could explain delinquencies on loans. Seasonalized rates of severe delinquency for auto loans are the highest since at least 2006, but the jobs market is strong, said the Journal.
“Usually you get the default spikes when unemployment spikes—it’s the biggest correlation in consumer credit. To see them go up that much while unemployment is still low is not typical,” Clayton Triick, a fund manager at fixed-income investor Angel Oak Capital Advisors told the Journal.
Defaults and missed payments on pools of auto loans made in the first half of last year to people with subpar credit are matching or outpacing those issued in 2008, according to an analysis published by S&P Global.
Prices for used cars are slowly leveling out with inventories steadily building. But cars remain expensive. In a comparison of used car pricing, used-car dealerships saw 32 days of sales for cars less than $10,000 while cars for over $35,000 had 55 days of sales, according to the Journal.
In May, car sales posted gains but were tempered with caution as Cox was forecasting some slowdown in the second half of this year.