As of late, rising vehicle costs and high interest rates have been putting significant pressure on the new vehicle marketplace, so a bit of good news is welcome. According to Edmunds, the average interest rate for a new vehicle loan dropped for the third month in a row in July, its lowest level of 2019. Last month, the annual percentage rate (APR) on new financed vehicles averaged 5.8 (dropping from six percent in June). It’s the first time interest rates dropped below six percent this year.
Data compiled by Edmunds found that 35 percent of shoppers who financed their vehicle purchases in July locked in at an interest rate below four percent, compared to 31 percent of those who financed purchases in June. The drop may provide some relief for dealers attempting to clear their lots of 2018 models. Edmunds estimated that approximately three percent of new vehicles sales in July were 2018 models, the highest level of outgoing model-year sales of any July in Edmunds’ records, dating back to 2002.
“The fact that there are still 2018 models sitting on dealer lots this far into the year is pretty disconcerting, but at least we’re seeing that automakers and dealers are making a greater effort to get shoppers in the door,” said Jessica Caldwell, Edmunds’ executive director of insights.
Edmunds predicts that automakers will likely continue to offer subtle interest rate incentives over the next few months, which should help both buyers and dealers, though prices remain at record levels.
“Rising vehicle costs and high interest rates have been placing immense pressure on the new-car market all year, so it’s nice to see shoppers get a bit of a reprieve,” said Caldwell. “Consumers are still in for a bit of sticker shock if they’re coming back to the market for the first time in a few years, but the fact that interest rates are trending slightly lower is helping soften the blow.”
This week, the Federal Reserve announced that it plans to cut interest rates by 0.25 percent, lowering the federal funds rate to a range of 2 percent to 2.25 percent. The Fed’s move will likely further lower interest rates on auto loans.