Auto Loan Terms Improve, But Payments Rise In Q4 2023

January 4, 2024 10:40 am

As record-low inventory levels and high demand have sent the prices of used and new vehicles to new heights over the past few years, auto loan payments have followed suit. Rising interest rates have only made this problem worse, even as things have stabilized a bit in recent months, prompting a substantial rise in auto loan rejections, though most Ford customers are still opting to go that route. Now, new data from Edmunds suggests that even as auto loan terms improved in Q4 2023, the average payment those customers are straddled with hit yet another record high in the last quarter of the year.

In Q4, the average loan length actually declined from 68.4 months in Q3 2023 and 69.7 in Q4 2022 to 67.8 months, but the average new vehicle payment rose from $736 in Q3 2023 and $717 in Q2 2022 to a new record high of $739. This is particularly interesting as the amount buyers financed declined quarter-over-quarter – from $40,149 to $39,977 – while the average percentage rate (APR) of those loans remained the same at 7.4 percent. The average down payment did increase slightly as well, from $6,907 to $7,074.

These numbers don’t tell the whole tale, however, as Edmunds notes that terms on longer loans declined in Q4 thanks to a return of incentives. In fact, the number of vehicles financed with a zero percent APR grew from 1.1 percent to 2.3 percent quarter-over-quarter. Regardless, the percentage of customers with a monthly payment of more than $1,000 also increased from 17.5 percent in Q3 to 17.9 percent in Q4 – a big jump from Q4 2022, when that same figure was just 15.7 percent.

“On the surface, car financing appears to be following the harsh trend line of the past few years, with average monthly payments and down payments reaching all-time highs for new vehicles,” said Jessica Caldwell, Edmunds’ head of insights. “But there are some very encouraging signs as we kick off 2024 when considering the makeup of deals in the latter half of Q4 2023. Incentives are slowly coming back as inventory improves. Most consumers are looking for low APRs with longer loan terms, so the growth in those loans is helpful to lure consumers who have been sitting out due to adverse financing and pricing conditions.”

We’ll have more insights like this to share soon, so be sure and subscribe to Ford Authority for ongoing Ford news coverage.

By Brett Foote

Brett's lost track of all the Fords he's owned over the years and how much he's spent modifying them, but his current money pits include an S550 Mustang and 13th gen F-150.