Climbing APR Pushes Lease Penetration to New Highs, Edmunds Says | Auto Finance News | Auto Finance News

Climbing APR Pushes Lease Penetration to New Highs, Edmunds Says

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Interest rates rose to an eight-year high in February and more consumers than ever are turning to leasing as a way to lower their monthly payments, according to a report from Edmunds.

Average new-vehicle annualized percentage rates (APR) hit 5.2% in February up from 4.9% last year, and 4.4% in 2013, according to the report. Used vehicles were not immune either as average APR among the category rose to 8.3% compared with 7.9% last year.

The increase in average interest rates are largely driven by an uptick in the number of mid-range new-vehicle APRs of 4% to 7%, Edmunds said. Meanwhile, rates above 7% and below 2% are expected to remain relatively steady.

“We’re starting to see a trickle-down effect from the rate increases happening at the federal level,” Jessica Caldwell, Edmunds’ executive director of industry analysis, said in a press release. “The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and as a result, we’re seeing loans that were formerly between 2% and 3% being pushed up into higher APR brackets.”

Higher interest rates and rising new-car prices contributed to record high lease penetration of 33.9% in February, Edmunds added. Average new-vehicle prices rose 2% year over year last month to $35,444, according to a report from Kelley Blue Book.

“Car shoppers tend to have tunnel vision when it comes to their monthly payments,” Caldwell said. “As average transaction prices and interest rates rise, we’re likely going to see more consumers explore the option of leasing. In some cases, this is a result of consumers simply seeking a way to cut down monthly payments, but for many others, this the only option available when they discover that they can no longer afford the costs of a new vehicle.”

Michael Vogan, automobile economist and associate director at Moody’s Analytics, will discuss the effects of rising interest on the industry at greater depth at the Auto Finance Performance and Compliance Summit slated to take place May 9-10 at the Omni Dallas. To register click here.

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