Higher interest rates are making it more expensive to finance car purchases, but consumers are buying anyway, according to the car shopping app CoPilot. The company reported Wednesday that used car sales jumped 5 percent month-over-month in October, despite interest rates on auto loans soaring to their highest levels since 2010.
“The continued strength of the car market highlights the challenge the Fed faces in trying to break the back of inflation,” said CoPilot CEO and Founder Pat Ryan in a press release. “Despite interest rate hikes increasing the costs of buying cars for most consumers, new and used car sales actually trended upward in October versus September, reversing the typical seasonal decline."
The average price of a car was $33,505 in March 2022. Now the price is $32,272, which is a 3.7 percent drop. Over that same period, the average used car loan rate jumped 120 basis points as of the beginning of this month, which translates into a 3.3 percent increase.
As a result, consumers are effectively paying the same amount as before, despite a 15 percent drop in wholesale prices since the beginning of the year.
Automotive research firm Edmunds released data Wednesday showing that the annual percentage rate (APR) on used car loans hit 9.6 percent, the highest rate since 2010, while the rate on new car loans hit 6.3 percent, the highest since before the pandemic.
Making matters worse for car shoppers, the average amount financed for used vehicles is $30,707 in October, compared to just $17,282 in 2010, according to Edmunds, meaning these higher rates come on top of significantly higher debt loads overall.
"We saw new interest rates climb to similar levels in the early 2000s, but so much has changed in the market since then: the average price of a vehicle has risen dramatically, there are fewer smaller, budget-friendly vehicles for shoppers to choose from, and on top of that, consumers are paying more for everything else in their lives," said Jessica Caldwell, executive director of insights at car shopping site Edmunds, in a press release.
CoPilot's best advice? Hold off on buying a car if at all possible. "The Fed will eventually win this battle, and when they do, car prices will finally drop in a meaningful way,” said Ryan.