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Low Interest Rates Fuel New-Vehicle Sales

Low Interest Rates Fuel New-Vehicle Sales

By Jeff Youngs, October 03, 2012
According to a report by Automotive News, banks "are charging U.S. buyers the lowest interest rates on new-vehicle loans since the Federal Reserve began surveying them in 1971." As a result of low interest rates, many automakers are able to offer 0% financing for 5-year loans, and leases are also more affordable.

J.D. Power and Associates observes the impact in its sales data. The company says that in 2012, 59% of buyers are borrowing to finance their new-vehicle purchase, compared with 53% in 2007. According to J.D. Power, the average price of a new vehicle has risen to $32,384, up from $30,880 in 2007, but the average vehicle loan payment has dropped to $462 per month from $483.

Low interest rates also impact leasing, which now accounts for 21% of all retail sales transactions, which has risen from 13% in 2009. J.D. Power says that lower rates, coupled with longer lease terms, have reduced the average monthly lease payment from $479 to $419.

Easing credit requirements are also accelerating buying among sub-prime consumers. Thomas King, a senior director at J.D. Power and Associates, said that buyers with lower credit scores are returning to the new-vehicle market, and that they tend to choose longer loan terms. King notes that sales to buyers with A-plus credit are up 7%, while B-tier buyers are purchasing new vehicles at a 26% greater rate than last year.