With the average age of new-car trade-ins — excluding leased autos — at just over six years, a shopper whose last purchase was in 2013 could suffer some sticker shock.
Last month, buyers paid an average of $36,902 for a new car, according to Edmunds, an auto-research firm and online buying guide. Thats $5,468 more than the average price of $31,434 in June 2013.
And while trade-ins and down payments can reduce how much you need to borrow for the purchase, the current average amount financed, $32,824, is $5,884 higher than the average of $26,940 six years ago — an increase of about 21.8%, compared with 17% growth in the average price.
The Key Auto Mall car dealership in Moline, Illinois.
Daniel Acker | Bloomberg | Getty Images
A combination of higher prices, lower values on some trade-ins and rolled-over loan balances contribute to consumers taking on more debt to purchase a new car, said Matt Jones, senior consumer advice editor at Edmunds.
"Theres a lot going on right now that car shoppers are dealing with, which could be especially hard for people who might not be prepared for it," Jones said.
While improved technology and safety features have pushed prices up, buyers also have shifted their preference to pricier SUVs and pickup trucks and away from lower-cost sedans and small cars. A non-luxury car costs an average of about $25,200, compared with about $34,400 for non-luxury SUVs and $47,200 for pickup trucks, according to Edmunds.
Additionally, 33% of consumers end up heading back to the dealership before fully paying off their existing loan. If they owe more on their trade-in than its worth, the balance can get tacked on to the loan for their new car.
The average amount of that negative equity is $5,038. Six years ago, 25.8% of buyers were upside-down on their existing loan, rolling an average $3,988 into their new loan.
Higher interest rates also have pushed up the cost of borrowing. For example, applying the current 6.03% average annual percentage rate (interest and fees) to the current $32,824 average amount financed results in $5,278 in interest for a 60-month loan, a monthly payment of $635 and total financing cost of $38,102.
Six years ago, the average APR for new-car loans was 4.1%. Applied to the then-average amount financed, $26,940, a borrower would have paid $29,841 in total financing cost over five years and had a monthly payment of $497.
With those payments eating up more of household budgets, consumers have been stretching out their loans to better accommodate the cost of a new car. As of June, the average loan length was closing in on 70 months — two months shy of six years.
Typically, the longer the loan, the higher the interest rate, which pushes up the total cost of the car. Your credit score also affects the rate youre able to get. The higher your score, the lower your available rate.
Despite rising auto prices and interest rates, the latest data from the Federal Reserve Bank of New York show that the share of loans in serious delinquency — 90 days or more behind — remained relatively low in the first quarter of 2019, at 2.36%. That figure has slowly ticked upward since 2012.
By the numbers, however, the share translates into at least 7 million Americans who were in serious delinquency on their car loan at the end of 2018. Thats 1 million more than at the end of 2010, when the economy was still get back on its feet from the Great Recession.
Youre not just buying a car for July 2019 — youre talking about having it in five or six or more years from now.
senior consumer advice editor at Edmunds
In a report issued earlier this year, consumer advocacy group U.S. PIRG warned that the continuing rise in auto debt is putting many consumers in a financially vulnerable position, which could worsen during an economic downturn.
If youre among those consumers considering a longer loan, Jones recommends giving thought to whether the car youre buying now will suit you down the road.
"Really think about what your lifestyle could look like in the future," he said. "Youre not just buying a car for July 2019 — youre talking about having it in five or six or more years from now."
The longer the loan term, the greater the chance you could reach a point where the amount you still owe on the loan is more than the value of the car itself. So if for some reason your car makes no sense for you at some point and you need a different one, it could mean trading it in and adding the negative equity to your next loan.
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Additionally, make sure youre dont buy more car than you need. While the base price for a specific car might be more reasonable, consumers often end up buying one with a lot of bells and whistles — much of which they probably dont need, Jones said.
"Weve been watching how much people are getting super well-equipped cars, but some are probably buying fancier versions than they really need to," Jones said. "Those buyers could probably get the same car without those fancy options and sometimes save a significant amount of money."
If a new car ends up being out of reach, a certified, pre-owned car may deserve a second look. They often come with a 100,000-mile powertrain warranty, which can ease concerns about footing the bill for major repairs.
"There are some really good deals for certified, pre-owned sedans especially," Jones said. "Theyve depreciated a lot and are pretty cheap, comparatively speaking, and can present some really good values for consumers."
About 35% of new cars are priced below $30,000, compared with 54% in 2012, according to a recent Cox Automotive report.
(CNBCs John Schoen contributed to this report.)
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