Kelley Blue Book: Ever-higher interest rates are squeezing subprime buyers out of the car market

by | May 15, 2023 | Stock Market

Earlier in May, the Federal Reserve increased interest rates for the 10th consecutive time. The move will likely exacerbate a trend changing the way Americans car shop, as buyers with less-than-ideal credit have been all but squeezed out of the new car market. Lenders divide buyers with lower credit scores into two categories. The Consumer Financial Protection Bureau describes credit scores from 580 to 619 as “subprime” and those below 580 as “deep subprime.”

According to Kelley Blue Book parent company Cox Automotive, few Americans in either category are now buying new cars.Subprime, deep subprime shoppers dropping out “In 2018, subprime buyers routinely made up more than 14% of new-vehicle sales, while deep subprime buyers were close to 10% of the market,” Cox Automotive reports. That began to shift with the arrival of the COVID-19 pandemic. This year, as interest rates have risen, “subprime buyers account for roughly 6% of new-vehicle sales; deep subprime is less than 2%.” At the end of the first quarter of 2023, the average interest rate on a new car loan stood at almost 9%. Used car loans were even higher — 14% on average. Rates that high, says Cox Automotive Chief Economist Jonathan Smoke, “have limited  who  can buy vehicles.” Also on MarketWatch: Grocery prices are rising more slowly, but food insecurity is surging among low-income Ame …

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