Average monthly payments and the average amount financed were higher for both new and usedvehicle loans in the fourth quarter of 2022 vs. a year ago.
But the increase was at a slower pace than prior quarters, possibly an indication of better availability – that’s the relatively good news in the just-published Quarterly Credit Industry Insights Report from TransUnion.
“The average amount barely moved,” says Satyan Merchant, senior vice president and head of TransUnion’s auto finance business. “That’s a good sign, coming from the inventory challenges we were facing.”
The bad news is interest rates rose so much in 2022, a total of 4 percentage points in the Federal Funds rate, that the rise in monthly auto-loan payments in Q4 2022 vs. a year ago was out of proportion percentage-wise, considering the narrow rise in the amount financed.
“It’s a function of the interest rate,” Merchant tells Wards.
A high mix of models with high trim and equipment levels, especially light trucks, also contributes to increases in loan size and monthly payments, he says. In the continuing short-supply environment, dealer and manufacturer incentives also are low.
“For Q4, for the entire year of 2022, there are very few incentives, whether subvented loans or cash back from the manufacturer,” Merchant says.
According to Chicago-based TransUnion, the average new vehicle amount financed increased just 2.7% in the fourth quarter to $41,590. But the average new-vehicle monthly loan payment was $718 in Q4, an increase of 9.8% vs. a year ago.
For used vehicles, the average amount financed was up just 1.8% from a year ago to $27,664. At the same time, the average used-vehicle monthly payment jumped 7.5% to $530.
Merchant says Q4 2022 appears to be the first time on record at the average new-vehicle payment was above $700 and the average used-vehicle payment was above $500 simultaneously.
Logically, the increases hit borrowers with subprime credit harder, presuming they’re stretching to make monthly payments, Merchant says. But interest rates are up across the board. He says, “It’s not just in one risk tier; it’s across the spectrum.”