Drivers see a return of the zero percent car loan with longer terms in Q4: report

Drivers to get no relief on insurance costs in 2024

Lenders softened loan terms for some drivers in the fourth quarter. (iStock)

Drivers got a better deal on auto loan terms during the fourth quarter of 2023, a recent report said. 

The share of new-vehicle sales with 0% APR financing ticked up to 2.3% of sales during the fourth quarter from 1.1% in the previous quarter, the Edmunds report said. 

This increase also came at an average term length of 54.3 months, up 9.5 months from the third quarter and the highest term length since 2021, when 7.1% of loans featured 0% APRs at an average term length of 56.8 months.

The better lending terms follow a break in interest rate increases. During its December meeting, the central bank announced a third interest rate pause, leaving the federal funds rate at a 22-year high of 5.25% to 5.5%. Fed officials also hinted that they could begin rate cuts this year, with the federal funds rate expected to drop to 4.6%, according to updated economic forecasts in the central bank's Summary of Economic Projections (SEP). 

"On the surface, car financing appears to be following the harsh trend line of the past few years, with average monthly payments and down payments reaching all-time highs for new vehicles," Edmunds Head of Insights Jessica Caldwell said. "But there are some very encouraging signs as we kick off 2024 when considering the makeup of deals in the latter half of Q4 2023. 

"Incentives are slowly coming back as inventory improves," Caldwell continued. "Most consumers are looking for low APRs with longer loan terms, so the growth in those loans is helpful to lure consumers who have been sitting out due to adverse financing and pricing conditions."

If you are looking to save money on your car costs, you could consider changing your auto insurance provider to get a lower monthly rate. Visit Credible to shop around and find your personalized premium without affecting your credit score.


Many still pay a lot to borrow

The share of auto loan payments topping $1,000 a month for new-vehicle financing surged to 17.9% in the fourth quarter, an increase from 17.5% in the previous quarter, Edmunds said.

The annual percentage rate (APR), or the amount Americans pay to finance a new car in the used vehicle market, climbed to 11.6% on average in the fourth quarter, increasing from 11.2% in the third quarter and 10% last year.

As auto loan payments surged, so did the risk of loan delinquencies. Lenders have responded to the evolving automotive landscape by tightening restrictions on auto financing. Roughly 30% of lenders responding to a recent Fed survey said their lending standards had become significantly more stringent. Some auto finance lenders, like Citizens Financial Group, have left the market altogether, while others, such as Capital One, have reduced the auto loans portion of their business.

Shopping around for new auto insurance can help lower your costs. The Credible marketplace can help you compare multiple providers and find your personalized rate in minutes.


No relief in insurance costs

Drivers are also dealing with spiraling auto insurance costs. Insurers, coping with more considerable losses because of a surge in severe accidents and more than two years of elevated inflation, have increased premiums to offset historically poor underwriting results. There is little indication that the increases are over as auto insurers seek regulatory approval for further rate hikes. 

Since April 2021, auto insurance has risen 35%, and in October, it soared at an annual rate of 19.2%, the fastest increase since 1985, according to a recent Jerry study. Three-quarters of Americans said that the rapid cost growth means car insurance is becoming unaffordable, and more than half said high premiums have forced them to cut spending in other areas. 

One way to take control of car ownership costs is by making sure you are paying for the insurance you need. Shopping around for new auto insurance could help lower your costs. The Credible marketplace can help you compare multiple providers and find your personalized rate in minutes without affecting your credit score.


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