{"id":8837,"date":"2023-05-15T08:05:49","date_gmt":"2023-05-15T12:05:49","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/ever-higher-interest-rates-are-squeezing-subprime-buyers-out-of-the-car-market\/"},"modified":"2023-05-15T08:05:49","modified_gmt":"2023-05-15T12:05:49","slug":"ever-higher-interest-rates-are-squeezing-subprime-buyers-out-of-the-car-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=8837","title":{"rendered":"Ever-higher interest rates are squeezing subprime buyers out of the car market"},"content":{"rendered":"
\n

Earlier in May,\u00a0the Federal Reserve increased interest rates for the 10th consecutive time.\u00a0The move will likely exacerbate a trend changing the way Americans car shop, as buyers with less-than-ideal credit have been all but squeezed out of the new car market.<\/p>\n

Lenders divide buyers with lower credit scores into two categories. The Consumer Financial Protection Bureau describes credit scores from 580 to 619 as \u201csubprime\u201d and those below 580 as \u201cdeep subprime.\u201d<\/p>\n

\n

According to Kelley Blue Book parent company Cox Automotive, few Americans in either category are now buying new cars.<\/p>\n

Subprime, deep subprime shoppers dropping out<\/strong><\/h2>\n

\u201cIn 2018, subprime buyers routinely made up more than 14% of new-vehicle sales, while deep subprime buyers were close to 10% of the market,\u201d Cox Automotive reports. That began to shift with the arrival of the COVID-19 pandemic. This year, as interest rates have risen, \u201csubprime buyers account for roughly 6% of new-vehicle sales; deep subprime is less than 2%.\u201d<\/p>\n

At the end of the first quarter of 2023, the average interest rate on a new car loan stood at almost 9%. Used car loans were even higher \u2014 14% on average. Rates that high, says Cox Automotive Chief Economist Jonathan Smoke, \u201chave limited \u202fwho \u202fcan buy vehicles.\u201d<\/p>\n

Also on MarketWatch:<\/strong> Grocery prices are rising more slowly, but food insecurity is surging among low-income Americans<\/p>\n

Interest payments add up quickly for them<\/strong><\/h2>\n

Higher interest rates push monthly payments up quickly.<\/p>\n

In March, the final sale price of the average new car was just over $48,000.<\/p>\n

For a top-credit-tier buyer, the typical loan, with 10% down and a 72-month term, could be secured at a rate of approximately 6.2%. For a $48,000 car, that would saddle a top-credit score buyer with a monthly payment of $720.<\/p>\n

The same vehicle and loan would be a very different story for a shopper with a subprime credit score. With a typical subprime auto loan rate of 17.9%, the monthly payments on the car, after 10% down, would jump to $983 a month.<\/p>\n

Over the life of the loan, the high-credit-score buyer will spend about $52,000, including $8,700 in interest. The subprime buyer would spend $70,000 over the same period \u2014 more than $27,000 in interest payments.<\/p>\n

Related<\/strong>: Why getting a car loan is becoming more complicated<\/p>\n

Automakers building for those who can buy<\/strong><\/h2>\n

Math like that completely pushes sub-prime and deep subprime buyers out of the market. Knowing those buyers won\u2019t be walking in the dealership door, automakers are increasingly building more high-end cars with price tags over $60,000.<\/p>\n

In 2023, there are just 10 cars on the market with prices under $25,000. Just four \u2014 the\u00a0Kia Rio,\u00a0Kia Soul,\u00a0Mitsubishi Mirage, and\u00a0Nissan Versa\u00a0\u2014 start under the $20,000 line before delivery fees are added.<\/p>\n

That pushes buyers into the used car market. There, they may find some short-term relief.\u00a0The wholesale prices dealers pay for the used cars they later sell dropped significantly last month\u00a0\u2014 a sign that retail price decreases may be coming.<\/p>\n

But in the longer term, our analysts expect used car prices to remain inflated for several years. Factors that affect the new car market change the used car market years later.\u00a0Pandemic-related factory shutdowns in 2021 and 2022 mean fewer used cars reaching the market today, restricting supply.<\/p>\n

This story originally ran on\u00a0<\/em>KBB.com.<\/em><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Earlier in May,\u00a0the Federal Reserve increased interest rates for the 10th consecutive time.\u00a0The move will likely exacerbate a trend changing the way Americans car shop, as buyers with less-than-ideal credit have been all but squeezed out of the new car market. Lenders divide buyers with lower credit scores into two categories. The Consumer Financial Protection […]<\/p>\n","protected":false},"author":1,"featured_media":8838,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-8837","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nEver-higher interest rates are squeezing subprime buyers out of the car market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Earlier in May,\u00a0the Federal Reserve increased interest rates for the 10th consecutive time.\u00a0The move will likely exacerbate a trend changing the way\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=8837\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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