APR for new models jumps to 8-year high


Perhaps it’s the mix of applicants or finance companies passing on risk to potential new-vehicle buyers.

Whatever the specific trigger, Edmunds announced on Thursday that interest rates on new-vehicle installment contracts are expected to soar to their highest point in eight years in February.

Edmunds reported that annual percentage rate (APR) on new financed vehicles averaged 5.2 percent in February, compared to 4.9 percent in 2017 and 4.4 percent five years ago. Edmunds experts pointed to an expected decrease in the number of loans in the 2 to 3 percent APR bracket and an expected increase in loans in the 4 to 7 percent range as the driving force behind this rise in the average.

Because this shift is happening in the mid-range of APRs, it means car buyers who qualify can still find deals, and the market isn’t facing a flood of subprime buyers. Edmunds noted the percentage of contracts with interest rates between 0 and 2 percent is expected to remain steady at 22 percent in February, compared to 21 percent in February 2017.

On the opposite end, Edmunds indicated the number of contracts with interest rates above 7 percent is also expected to remain steady at 19 percent in February, compared to 18 percent in February 2017.

“We’re starting to see a trickle-down effect from the rate increases happening at the federal level,” said Jessica Caldwell, Edmunds executive director of industry analysis. “The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and as a result we're seeing loans that were formerly between 2 and 3 percent being pushed up into higher APR brackets.

“Additionally, dealerships can match these independent loan rates brought in by shoppers,” Caldwell continued.

Edmunds analysts also pointed out that higher interest rates and near-record high lease returns could also be a contributing factor toward lease penetration levels hitting an all-time high of 33.5 percent in February.

“Car shoppers tend to have tunnel vision when it comes to their monthly payments,” Caldwell said. “As average transaction prices and interest rates rise, we’re likely going to see more consumers explore the option of leasing.

“In some cases this is a result of consumers simply seeking a way to cut down monthly payments, but for many others, this the only option available when they discover that they can no longer afford the costs of a new vehicle,” she went on to say.

As interest rates tick higher, the analysts at Kelley Blue Book on Thursday reported the estimated average transaction price (ATP) for light vehicles in the United States was $35,444 in February.

New-vehicle prices have increased by $722 (up 2.1 percent) from February 2017, while dropping $96 (down 0.3 percent) from the previous month.  

“It was another month of solid transaction prices in February 2018, with 2 percent growth year-over-year,” said Tim Fleming, analyst for Kelley Blue Book. “Even with new-vehicle demand expected to continue to slow in 2018, average transaction prices have been unaffected, though incentives have risen similarly to offset part of the extra cost.

“The numbers indicate that new-car buyers are still willing to pay top dollar for the latest models with the most current features and technology,” Fleming continued. “Even the new Honda Accord and Toyota Camry are commanding large premiums over their predecessors, despite competing in a rapidly shrinking segment.”

The charts below offer more details from Edmunds:

New-Car Finance Data


February 2018

February 2017

February 2013





Monthly Payment




Amount Financed








Down Payment




Used-Car Finance Data


February 2018

February 2017

February 2013





Monthly Payment




Amount Financed








Down Payment