Edmunds’ newest auto finance data not only showed the growing share of consumers paying at least $1,000 per month for either a new or a used vehicle, experts also cautioned that they “are only seeing the tip of the negative equity iceberg.”

Edmunds reported on Wednesday that 15.7% of consumers who financed a new vehicle during the fourth quarter committed to a monthly payment of $1,000 or more. That’s the highest it’s ever been, according to the company’s data.

That reading is up from 10.5% in Q4 2021 and 6.7% in Q4 2020.

And it’s not just new models rolling over the curb with that monthly payment.

Edmunds said 5.4% of consumers who financed a used vehicle in Q4 2022 committed to a monthly payment of $1,000 or more — also a record high. That’s up from 3.9% in Q4 2021 and 1.5% in Q4 2020.

Of course, fueling that monthly payment rise not only is the cost of the vehicles themselves, but also the interest rates attached to those contracts.

Edmunds indicated the average annual percentage rate (APR) on new financed vehicles climbed to 6.5% in Q4 2022 compared to 5.7% in Q3 2022 and 4.1% in Q4 2021.

Experts added the APR on used financed vehicles climbed to 10% in Q4 2022 compared to 9% in Q3 2022 and 7.4% in Q4 2021.

Perhaps helping finance companies mitigate some risk, Edmunds noted that consumers are putting more money down on their purchases to offset rising costs.

Analysts found that the average down payment for new and used vehicles hit record highs in Q4 2022, climbing to $6,780 and $3,921, respectively.

Meanwhile, Edmunds also noticed a growing share of luxury shoppers are turning their backs on leasing and choosing to purchase instead.

Edmunds data revealed that new-vehicle lease penetration dropped to 16% in Q4 2022, compared to 29% in Q4 2019. Luxury new-vehicle lease penetration dropped to 26% in Q4 2022, compared to 53% in Q4 2019.

“Just as new- and used-car prices finally started to cool off in Q4, rapidly rising interest rates created an even greater barrier to entry for consumers who rely on financing — which is the vast majority of car shoppers,” Edmunds director of insights Ivan Drury said in a news release.

“Although the last quarter of the year typically skews toward luxury vehicle purchases, this near-record percentage of vehicles that are being purchased rather than leased reflect tougher market conditions far more than affluent consumers shelling out a bit more than usual to treat themselves over the holiday season,” Drury continued.

Edmunds analysts caution that the combination of costlier vehicle financing and cooling used-vehicle values could spell trouble for some consumers — and perhaps finance companies, too — down the road if they do not budget or plan accordingly.

Edmunds conducted a deeper dive into the share of new vehicle sales with a trade-in that had negative equity in Q4 2022, which showed:

• 17.4% of new-vehicle sales with a trade-in had negative equity in Q4 2022, compared to 14.9% in Q4 2021 and 31.5% in Q4 2020.

• The average amount owed on upside-down installment contract was $5,341 in Q4 2022 compared to $4,141 in Q4 2021 and $5,059 in Q4 2020.

“Vehicle equity is really a tale of two gears for consumers over the past few years,” Drury said. “At the onset of the pandemic, consumers benefited from low interest rates and elevated trade-in values, helping shield even the more questionable financing decisions from resulting in negative equity. This unique confluence of market forces resulted in some vehicle owners being able to take advantage of positive equity on their loans and even their leases.

“But as we shifted toward an environment with diminished used car values and rising interest rates over the past few months, consumers have become less insulated from those riskier loan decisions, and we are only seeing the tip of the negative equity iceberg,” he went on to say.

Quarterly New-Car Finance Data (Averages)

 

2022 Q4

2021 Q4

2022 Q3

Term

69.7

69.8

70.3

Monthly Payment

$717

$659

$703

Amount Financed

$40,833

$40,308

$41,347

APR

6.5%

4.1%

5.7%

Down Payment

$6,780

$5,921

$6,453

 

Quarterly Used-Car Finance Data (Averages)

 

2022 Q4

2021 Q4

2022 Q3

Term

70.5

70

70.9

Monthly Payment

$563

$530

$565

Amount Financed

$30,217

$30,469

$31,366

APR

10.0%

7.4%

9.0%

Down Payment

$3,921

$3,552

$3,700

Source: Edmunds