Vehicle prices are revving up. At $36,733, the average price of a new vehicle was 2.3% higher in March 2019 compared with the same time last year, according to data from Kelley Blue Book.
Although March’s average vehicle price was $174 less when compared to February, the overall upward trend of auto prices could put a brake on sales. According to J.D. Power, overall sales of new vehicles fell 1.7% in the first quarter.
Despite some weakness in the auto industry, first-quarter reports from some banks show healthy auto loan business — suggesting there’s still demand for cars and that people may be borrowing more to get them.
If you’re thinking about getting a loan for a new car, it’s important to understand all of your options so you don’t end up taking on more debt than you can manage.
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How is the vehicle market changing, and how could it impact you?
Average monthly auto loan payments were up about $30 in March compared with the same period a year ago, according to Kelley Blue Book data. This increase may seem slight, but it could be contributing to the first quarter’s slower sales pace, according to Kelley Blue Book analyst Tim Fleming in a press release.
What’s more, higher car prices could be translating to bigger auto loan business for banks. Wells Fargo recently reported that its auto loan originations rose 24% in the first quarter compared with the same period a year ago.
As the average price for a new car has risen, many consumers’ ability to keep up with their auto loan payments has been tested. Recent New York Federal Reserve data on household debt showed that in the fourth quarter 2018 auto loan debt climbed to $1.27 trillion, about a 4% increase compared with the fourth quarter of 2017. The rate of borrowers falling at least 90 days behind on their monthly auto payments rose to 2.4% in the last quarter of 2018.
To help avoid financial trouble with your auto loan, do your research on auto loans before you borrow and understand the important steps to follow before you take on a new loan, like setting a budget and shopping for a loan that works for your situation.
What happens next?
2019 is shaping up to be a pricier year for people in the market for new vehicles. However, with the Federal Reserve signaling that it’ll keep interest rates steady for the rest of the year, interest payments on auto loans may remain relatively flat.
At the same time, if vehicle sales continue to be sluggish through the second quarter, dealers could be more aggressive about offering discounts to buyers.