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Used Car Monthly Payments Expected to Climb to Record Highs in Q1

Car shoppers are digging deeper into their pocketbooks to finance their car purchases. According to Edmunds, the average monthly payment for used vehicles is expected to break a record, climbing to $538, compared to $524 in Q4 2021 and $432 in Q1 2021. In April, Edmunds said its data found the average amount financed for used vehicles would the first quarter of 2022 would climb to a record $30,830 compared to $23,958 in Q4 2021.

"Shrunken inventory continues to wreak havoc on both the new and used vehicle markets, and shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms," said Jessica Caldwell, Edmunds' executive director of insights.

The average down payment on used vehicles climbed to $3,574 in Q1 2022, a 7% increase compared to Q1 2021. Used loan durations also set a new record, climbing to 70.4 months compared to 68.2 in Q1 2021.

Analysts for the automotive inventory and information online resource caution that longer loan terms might seem appealing to car shoppers because they offer lower monthly payments, but they can also present risks to consumers down the road.

The old "20/4/10 rule" of car buying states you should make a 20% down payment, have a loan no longer than four years, and have a total monthly car budget that does not exceed 10% of your take-home pay. With the high cost of vehicles today, this rule is being ignored, as the most common loan term for a used car in the first quarter of 2022 was 72 months. This means even though people are financing less for used cars than for new cars, it takes them roughly the same amount of time to pay off the loan.

“Financing a used vehicle could potentially end up costing you more in the long run," said Ivan Drury, Edmunds' senior manager of insights. "If you're financing a three-year-old vehicle with a 70-month loan, you'll have a nine-year-old vehicle by the time you complete your payments. That's risky business when you consider wear-and-tear, and you could be at greater risk of needing to roll negative equity into your next car loan."

Edmunds recommends a 60-month auto loan if you can manage it. A longer loan may have a more attractive monthly payment, but you could be paying too much in the form of high interest rates. See Edmunds’ guidance on determining the appropriate loan term length for your next vehicle purchase.

When in the market for a used car, stop by Carousel Preowned. Carousel Preowned serving Iowa City, Cedar Rapids, Davenport, North Liberty, Marion, and Coralville, IA, is proud to be an automotive leader in our community. We do our best to ensure your complete satisfaction every time you step into our car dealership. This is why we offer the widest selection of used and pre-owned cars, trucks, and SUVs and provide true ease of purchase in Iowa.

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