News & Media
pickup truck in driveway
Solidago / Getty Images

Monthly Car Payments May Rival Mortgages

Some financial experts worry consumers are overextending as rising interest rates combine with record average prices on luxury cars, rugged SUVs and trucks.

AUGUSTA, Ga. – For those eyeing a new Tesla, it isn’t just the sticker prices that are electrifying. It’s also mini-shocks that come with every monthly payment.

Whether it’s high-end electric, luxury cars or swanky SUVs and pickups, rising interest rates are combining with record average prices to saddle buyers with payments that can rival what they pay to put a roof over their heads. As such, it’s leading experts to worry that consumers may become overextended, especially with the distinct possibility of a recession looming.

“It concerns me that many Americans are willing to stretch to buy a vehicle,” said Mark Hamrick, senior economic analyst for Bankrate. “This is a cautionary tale.”

For example, Tesla estimates on its website that the monthly payments for the long-range version of its Model Y crossover would be $1,470 a month for a 48-month loan, excluding the down payment and fees.

That’s roughly equal to the monthly payments taking out a 30-year mortgage for a $300,000 home at a 5.7% interest rate after putting down 15%.

Sky-high auto payments will only be made worse if the Federal Reserve raises interest rates again in reaction to Tuesday’s announcement that inflation is now 9.1%, a new 40-year high. Having increased rates by 0.75% last month, speculation is focusing on whether it may boost rates by the same amount again this month – or even go to a full percentage point in order to try to stymie inflation.

Rising interest rates are bad enough, but they are being coupled with average new vehicle prices that hit a record $48,043 in June, Kelley Blue Book reported, up 12.7% from the same month a year ago.

Perhaps, then, it is no surprise that monthly payments are soaring. Monthly payments exceeded $1,000 for 12.7% of consumers who financed a new vehicle bought in June, Edmunds.com said. It was the highest level ever recorded, having risen from 7.3% in the same month last year.

Car prices hit record

“The average price of a car has gone up so much and so quickly. You’re not seeing zero (percent financing), no lease deals. You’re not seeing anything,” said Ian Beavis, chief strategy officer at AMCI, an automotive industry marketing firm.

Some of the highest payments are occurring for luxury vehicles, bought by rich customers who are fairly immune to the ravages of inflation, and rugged but costly heavy-duty SUVs and pickups often purchased by drivers who need them for cargo hauling and passenger capacity.

“It’s an interesting mix,” said Ivan Drury, an analyst for Edmunds.com. “The work vehicle or the ‘completely-over-the-top’ vehicle.”

Since many car dealers or manufacturers list financing options and projected monthly payments, it’s relatively easy to see just how high payments have become. Examples:

  • A 2017 Chevrolet Suburban 1500LT with 11,000 miles on its odometer was on sale at a CarMax dealership in Oklahoma for $71,998. That works out to an estimated $1,433 to $1,547 a month on a 48-month loan to buyers with very good credit for the full-size SUV.
  • A 2022 Ram 1500 Laramie Crew Cab pickup at a Denver dealership had a list price of $67,790, which translates to $1,271 for 48 months.
  • A $65,170 new Mercedes-Benz E-Class 4Matic would have payments estimated at $1,234 to $1,284 a month at a dealership in Clearwater, Florida.

Look for the best interest rate

Of course, payments vary based on factors like interest rates - the lower rates go to customers with better credit scores - and loan term. Many, if not most, buyers also have a trade-in vehicle, which can lower their monthly payments dramatically.

While many buyers’ car payments could have easily exceeded their mortgage payments, it’s important to take into consideration that home values have risen dramatically as well.

The median price of a single-family house in the U.S. was $428,700 in the first quarter, up from $369,800 the year before, the St. Louis Federal Reserve reports. At the current median price, a mortgage might typically go for $1,988, Bankrate reports.

So for every gain in car prices, home prices are galloping ahead as well. Even if inflation eases, prices are unlikely to recede. But this much is clear: The four-figure monthly car payment may be here to stay.

Copyright © 2022 The Augusta Chronicle. All rights reserved.