Car ownership is getting more costly even as vehicle prices dip. Here’s why

Prices for new or used cars may have fallen over the past year, but the overall cost of owning a vehicle is getting even more expensive.

This is because the extra costs associated with owning a car, such as interest rates on car loans and insurance, have been rising. The average interest rate on a six-year auto loan grew to 8.41% in February from 6.97% last year, according to the most recent report. data from the Federal Reserve Bank of St. Meanwhile, auto insurance rates jumped 22.6% between April 2023 and April 2024, according to to the US Bureau of Labor Statistics.

Those percentages add up to hundreds of extra dollars a month on a car note, automotive experts told CBS MoneyWatch.

“The total cost of owning a car isn’t what people think if you haven’t shopped around in the last few years,” said Jessica Caldwell, head of insights at Edmunds. “You will have a different experience.”

Rising auto loan rates have “cast a thick shadow over the auto market” so far this year, Caldwell said. Rates have risen so much that the average buyer will now pay an additional $10,668 in interest payments over the life of the loan, she said. In 2021, this amount was US$6,418.

“I’ve had conversations with consumers and there are going to be people who are left out of the market,” Caldwell said. “These monthly payments are harder to fit into your monthly budget.”

Car-buying activity typically increases during the spring and summer months, experts say, because customers like to tour dealerships in warmer weather. But auto loans and insurance rates are starting to threaten what should be a fruitful season for automakers.

Gasoline prices and regular vehicle maintenance — such as an oil change or tire rotation — are also taking a toll on family budgets, Caldwell said. A March Bank of America survey found that Americans consider vehicle maintenance and loans to be two of the five most difficult household expenses to cover.

The average age of cars, trucks and SUVs in the U.S. continues to age, reaching a record 12.6 years by 2024, thanks in part to rising interest rates.

“Faced with these higher ‘all in’ auto costs, it may be that some consumers are waiting for auto prices to fall further – or resisting new inventory – before purchasing,” Bank of America said in its survey. “This may explain why owners keep their vehicles longer.”

To be sure, dealerships will still make plenty of sales this year, but buyers are being more careful these days about how much it costs to insure a vehicle and where to get financing, Caldwell said. US new vehicle sales rose nearly 5% from January to March, US sales figures reported by automakers show earlier this year.

“Some people have accepted the fact that this is how it is and that things are not going to change in the next six months,” she said.

The average price of a new car was about $49,111 in May, down 1.5% from a year earlier. according to for Carros.com. The average used car price was $28,910, down 6.3% from a year ago in May, Cars.com said. Prices have fallen because automakers are building up inventories and because dealers are bringing in more discounts in an effort to attract buyers, Caldwell said.

But even as prices fall, Americans struggle to keep up with their car payments. More car owners have defaulted on their car loans, according to February data of the New York Federal Reserve. Americans owe $1.6 trillion in auto debt as of February, an increase of $55 billion from the previous year.