Q1 financing metrics poised to set numerous records

Most of the major financing metrics Edmunds tracks regularly are poised to set new records.

With the retail price of new and used vehicles so high, Edmunds reported on Friday that the average amount financed and monthly payments recorded during the first quarter are at the highest levels analysts have ever seen.

Down payments also are noticeably higher, according to Edmunds’ analysis.

“Shrunken inventory continues to wreak havoc on both the new and used vehicle markets, and shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms,” Edmunds executive director of insights Jessica Caldwell said in a news release.

According to Edmunds, the average monthly payment for new vehicles purchased in Q1 is expected to climb to $648, the highest level that Edmunds has on record, compared to $639 in Q4 2021 and $575 in Q1 2021.

Edmunds said the average monthly payment for used vehicles is also expected to break a record, climbing to $538, compared to $524 in Q4 2021 and $432 in Q1 2021.

Edmunds data also showed that the average amount financed for new and used vehicles will also hit record levels in the first quarter, climbing to $39,340 and $30,830 compared to $35,040 and $23,958 in Q4 2021, respectively.

Analysts also pointed out that that the increase in average monthly payments and amount financed is in part due to luxury shoppers moving away from leasing toward financing their new vehicles

Edmunds indicated that luxury new vehicle lease penetration fell to 32% in March 2022, down from 53% in March 2019.

And to get into that installment contract is taking a much larger initial commitment from consumers.

Edmunds determined that the average down payment on new vehicles climbed to $6,026 in Q1 2022, a 27% increase compared to Q1 of 2021 and the first time this figure has surpassed $6,000.

Analysts noted that the average down payment on used vehicles saw a less notable increase, climbing to $3,574 in Q1 2022, or a 7% increase compared to Q1 2021.

But analysts mentioned that used-vehicle financing terms set a new record this quarter, climbing to 70.4 months compared to 68.2 in Q1 2021.

Edmunds acknowledged that longer contract terms might seem appealing to vehicle shoppers because they offer lower monthly payments, but caution that they can also present risks to consumers down the road.

“Many car shoppers are likely seeing red when faced with the prospect of paying sticker or above sticker price for new vehicles, and are defaulting to the used market to seek relief. But this is not a normal market, and financing a used vehicle could potentially end up costing you more in the long run,” Edmunds senior manager of insights Ivan Drury said in the news release.

“If you’re financing a 3-year-old vehicle with a 70-month loan, you’ll have a 9-year-old vehicle by the time you complete your payments. That’s risky business when you consider wear-and-tear, and you could be at greater risk of needing to roll negative equity into your next car loan,” Drury went on to say.

Edmunds experts advise that consumers in need of a vehicle, and thinking that a used vehicle will save them money, should instead consider buying a certified pre-owned model since those units sometimes can offer more favorable interest rates and warranties.

“It’s easy to be blinded by the initial sticker shock of paying MSRP for a new vehicle, but car shoppers need to focus on the bigger financial picture,” Drury said. “Used vehicles might save you some money upfront on the purchase price, but make sure you’re not paying too much to the bank in the form of high interest rates.”

Quarterly New-Car Finance Data (Averages)

Quarterly Used-Car Finance Data (Averages)

Source: Edmunds