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Financing costs prop up expense of new-vehicle ownership
Financing charges on new vehicles increased 24% year over year to a weighted average of $920 per year, according to data in AAA’s 2019 Your Driving Cost report. The increase was primarily driven by higher interest rates, rising vehicle prices and lengthening loan terms.
AAA estimates that for every 12 months added to the life of an auto loan, $1,000 is added to the total finance charge, Michael Calkins, manager of technical services at AAA, told Auto Finance News. Financing costs accounted for 40% of the total increase in the average expense of new-vehicle ownership for consumers
By segment, half-ton crew cab pickups saw the largest increase in financing charges, up 32.3% year over year, to $1,228.
Each credit category — from subprime to prime — saw a 1% year-over-year increase in financing charges, which was “a little surprising,” Calkins said. “We thought maybe it was subprime affecting the [increased financing cost] but when we looked more closely at the data, [the increase] was across the board,” he added.
Looking forward to a potential recession, Calkins envisions minimal change in financing costs. “Finance doesn’t change a whole lot — you might get more incentives and more bought-down rates in the recession, because automakers want to move the metal, and they’re going to do whatever it takes, but typically that’s not in the form of price cuts,” Calkins said.
