New vehicle loan rates are typically less than those for used models. Still, since the base price of a new car is so much more than a pre-owned vehicle, many Americans feel that they can’t afford a new car. What’s more, pre-owned vehicles can quickly reach “unaffordable” levels, too: Experian said this week that depending on a buyer’s 2024 credit score, used car loan interest rates can skyrocket to 21%. 

The average used car loan rate is now 12.01%…nearly double the average new vehicle rate of 6.84%.

With a national combined average rate hovering near 9.5% (which is apparently the lowest average in some time), if you have excellent credit you should be able to secure a “financially viable” interest rate. Sign up for a car loan with a “super prime” score of 781 or above, you’ll secure a rate between 5% and 7%. However…

According to an industry insider, folks still don’t see much “affordable” about buying a car.

The Car Dealership Guy posted recent affordability sentiments provided by Cox Automotive.

Vehicle affordability is "technically" the best it’s been since May 2021:

Why?

Incentives are on the rise — plus, avg. auto loan rates just hit their lowest point in over a year, dropping to 9.53%.

But there’s a catch…

Average transaction prices are stuck at elevated…

— Car Dealership Guy (@GuyDealership) October 16, 2024

Transaction prices are basically erasing any relief the buyer might have felt from a reduced average loan rate.

Indeed, dealerships tend to add fees and fines, expensive warranty or add-on packages, and other “this or that” costs. Not to mention any market-influenced changes to the vehicle’s MSRP. Some drivers also roll over negative equity into their new loan, too, triggering a larger starting loan sum.

In October, the average new car retails for $48,397 (Kelley Blue Book). As of this month, the average price of a used car is $25,571 (CarEdge).

Let’s say I go to buy an average-priced new car (the 2024 Toyota RAV4 Prime fits in this band) and land in the combined average zone for my interest rate. I put down $2,500 and go for a 60-month term.

In the end, I borrow $45,897 for 60 months at 9.5%. My estimated monthly payment is $964. By the way, this doesn’t include tax, title, and fees (which many Americans merge into their car loan) I’ll let you be the judge on comfort level, here.

Car insurance costs aren’t helping.

This year, the typical full coverage car insurance policy runs Americans between $2,388 and $2,543, or around $199 to $212 a month (Bankrate).

Of course, if you have sub-prime credit, a poor driving record, and live in a state experiencing an “insurance cost crisis,” good luck. In Louisiana, for instance, the average resident driver shells out about $3,696 per year for full coverage. My heart races just typing the amount.

Let’s say I get an average full coverage policy on my new 2024 RAV4 Prime for $205 per month.

Add that to my $964 payment and I’m at $1,169 a month for fixed new SUV expenses.

Look, I don’t have all the answers to the industry making cars more affordable. In the meantime, folks, I recommend self-advocating by getting car loan literate before you sign up for a years-long commitment. Second, understand how steeply cars depreciate over time. If you’re concerned about your financial health, get the car that suits your unique situation best.