Monthly Car Payments Are At Record Levels

In America, cars don’t just represent freedom, they’re a necessity in a country where many people live in rural areas and commute to the city. Unfortunately, the average price tag on this necessity has gone up. Average monthly car payments are now over $700, which is the highest amount on record.

What Is Causing the Spike in Car Payments?

Along with a record spike in monthly car payments, gas is still hovering at record prices of over $5 per gallon. With rising interest rates and borrowing costs, these prices are likely to go higher yet.

Why are new and used cars so expensive now? The spike can still be traced back to the shortage of computer chips that started during the pandemic. At the start of the lockdowns, many auto manufacturers dropped orders for computer chips as sales were going down dramatically. At the same time, people moved their activities online and increased demand for electronics like laptops, tablets, TVs, and the like. This caused chip manufacturers to shift production over to electronics.

New Cars Are More Expensive

Another reason for the price spike is the pandemic-related exodus from cities into more rural and suburban areas. This created a bigger demand for cars, as many people who previously may have only used public transportation suddenly needed cars for everyday tasks.

Automakers weren’t prepared for this sudden rise in demand and were unable to meet it in part due to the extra need for microchips. New cars require microchips for almost everything, including power windows, navigation screens, and climate controls, among other things. With microchip production diverted to electronics, automakers were caught flat-footed by the demand. With only a limited supply of chips, many automakers cut production on smaller cars and instead, put the available chips into larger, more expensive vehicles, like SUVs. This means that there are fewer affordable compacts and sedans available.

What About Used Cars?

The result of all this is that prices for new cars have climbed to record levels. The average cost of a new car is over $47,000, which is also part of why the monthly payments are so high.

You might be wondering about how used cars fit into this new pricier market. Well, the answer is that the prices for used cars have also skyrocketed. Prices for used cars are up by just over 16% from a year ago. To compare, new cars have gone up by 12.6% in the last year. To put that into perspective, a $300 payment from a year ago might now be around $600.

Despite the rising prices across the board, Americans still love their cars and demand remains strong. The best advice for car shoppers is to expect to pay more, but also to do your research and be flexible on different car models.