The auto industry is bracing for a 25-basis-point increase in interest rates later this month, but a boost in 0% financing deals reduced average APRs in November, according to data provider Edmunds.
Average APRs on new vehicles fell to 6% in November from 6.2% in October, according to Edmunds’ Third-Quarter Used-Car Market Report. Zero percent financing offered through holiday incentives caused the dip, but analysts caution that the trend will not continue.
“Automakers are certainly offering more 0% finance deals this holiday season than they have in previous months, but they’re still few and far between,” Jeremy Acevedo, Edmunds manager of data strategy, said in a statement. “Car buyers got a bit of relief this month thanks to Black Friday deals, but an average interest rate above 6% is still a tough pill to swallow, especially for shoppers who might be coming back to the market after a number of years,” Acevedo said.
The report goes on to note that 5.5% of financing deals were 0% promos, the lowest level since November 2005. By comparison, 14.6% of financing deals in August were interest-free.
Affordability issues mount as the cost of borrowing money increases. “Used vehicles generally incur higher interest rates than new vehicles, and used-vehicle APRs continue to grow, up 11% from a year ago,” the report reads. “Consumers looking to maintain lower monthly payments are not only putting more money down as prices rise, but they’re also extending their term lengths to 66.9 months, on average.”