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

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

That's because extra costs associated with having a car, like interest rates on auto loans and insurance, have been climbing. The average interest rate on a six-year auto loan grew to 8.41% in February, up from 6.97% last year, according to the most recent data from the Federal Reserve Bank of St. Louis. Meanwhile, auto insurance rates jumped 22.6% between April 2023 and April 2024, according to the U.S. Bureau of Labor Statistics. 

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

"The all-in cost of car ownership is not what people [would] think if you haven't shopped in recent years," said Jessica Caldwell, head of insights at Edmunds. "You're in for a different experience."

Hit from interest rates, gas 

Rising auto loan rates have "cast a dense shadow over the car market" so far this year, Caldwell said. Rates have climbed so much that the average buyer will now pay an additional $10,668 in interest payments over the life of their loan, she said. In 2021, that figure was $6,418.

"I've had conversations with consumers and there will be people who are sitting out of the market," Caldwell said. "These monthly payments are tougher to fit into your monthly budget."

Car buying activity typically picks up during the spring and summer months, experts said, because customers like to stroll dealership lots in warmer weather. But auto loans and insurance rates are starting to threaten what should be a fruitful season for automakers.

Gas prices and regular maintenance on a vehicle — like getting the oil changed or the tires rotated — are also weighing down household budgets, Caldwell said. A Bank of America survey from March found that Americans feel vehicle maintenance and loans are two of the top five most difficult household expenses to afford. 

The average age of cars, trucks and SUVs in the U.S. keep getting older, hitting a record of 12.6 years in 2024, thanks in part to rising interest rates.  

"Faced with these higher 'all in' automotive costs, it could be that some consumers are waiting for auto prices to fall further — or holding out for newer inventories — before purchasing," Bank of America said in its survey. "That may explain why owners are keeping their vehicles for longer."

Why car prices are falling

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

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

The average new car price was about $49,111 in May, down 1.5% from a year ago, according to Cars.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 ramping up inventory and because dealerships are bringing back more discounts in an effort to entice buyers, Caldwell said. 

But even as prices fall, Americans are struggling to keep up with their car payments. More car owners have fallen into delinquency on their auto loan, according to February data from the New York Federal Reserve. Americans owe $1.6 trillion in auto debt, as of February, up $55 billion from a year prior. 

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Khristopher J. Brooks

Khristopher J. Brooks is a reporter for CBS MoneyWatch. He previously worked as a reporter for the Omaha World-Herald, Newsday and the Florida Times-Union. His reporting primarily focuses on the U.S. housing market, the business of sports and bankruptcy.

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