Auto loan interest rates have increased while average transaction prices have decreased in February 2024

In the automotive industry, the impact of inflation on car prices and auto loan interest rates has been a significant concern from 2022 to 2023. As prices for essentials such as food and fuel skyrocketed, consumers found themselves faced with tighter budgets. The solution to combat rising inflation often involves increasing interest rates, including those for auto loans, which can add to the financial burden of consumers.

This higher cost of borrowing has affected car manufacturers and dealers as well, as buyers are becoming more hesitant to opt for pricier vehicle configurations. However, according to J.D. Power’s U.S. Automotive Forecast for February 2024, there are encouraging signs of market recovery despite the spike in auto loan rates.

New car interest rates have gone up by 17 basis points since February 2023, now averaging at 6.9 percent. The silver lining is that the average monthly payment has remained steady compared to the previous year, standing at $722. Additionally, the average retail transaction price has decreased to $44,045, down nearly $2,000 from the same time last year and $4,700 lower than in December.

Another positive indicator is the returning sense of normalcy in the car buying process. With rising inventory levels, buyers now have more options to choose from, increasing the likelihood of incentives or discounts being offered. In fact, discount and incentive spending per vehicle is expected to rise to $2,565 this month, a $66 increase from January.

J.D. Power’s research also shows that vehicles are spending more time on dealers’ lots, with the average time increasing by two weeks to 43 days compared to a year ago. Moreover, the percentage of cars selling within 10 days of arrival has dropped from 58 percent in early 2022 to 32.7 percent this month.

As the automotive industry navigates the challenges posed by inflation and rising interest rates, these insights provide a glimpse into the evolving dynamics of the market. By staying informed and adapting to changing conditions, industry professionals can better serve consumers and drive growth in the sector.