Auto loan interest rates are up but average transaction prices are down (February 2024)

Inflation was a hot topic in the U.S. in 2022 and 2023, as everything from food to fuel rapidly became more expensive, squeezing consumers’ wallets from almost every angle. Unfortunately, the solution to rising inflation is to boost interest rates — including auto loan interest rates — which is often just as painful as the problem it’s meant to resolve. For car shoppers, higher interest rates equate to more expensive monthly payments and a higher overall price.

Car manufacturers and dealers feel the squeeze because buyers aren’t as enthusiastic about spending extra money for more expensive and profitable configurations. J.D. Power’s U.S. Automotive Forecast for February 2024 found a significant increase in auto loan rates since last year, but there are several positive signs that the market is recovering.

New car interest rates have increased 17 basis points since February 2023, reaching an average of 6.9 percent. The good news is that the average monthly payment remained flat from a year ago, though it’s still expensive at $722.

More positive signs came from the average retail transaction price and automaker incentives, with buyers paying an average of $44,045, a decline of almost $2,000 from February last year, and $4,700 less than in December. 

The car buying experience is also starting to return to normal. Where many dealers were selling desirable models before they were off the truck the last few years, rising inventory levels give buyers more choice and increase the likelihood of there being an incentive or discount. Discount and incentive spending are projected to climb to $2,565 per vehicle this month, a $66 increase from January.

J.D. Power found that the average time vehicles spend on dealers’ lots increased by two weeks from a year ago to 43 days, and the percentage of cars that sold within 10 days of hitting the lot decreased from 58 percent in early 2022 to 32.7 percent this month.