Rise in car loans boosts US consumer credit usage in April, Fed report shows

More people are buying cars as the pandemic lifts and the demand is causing costs to surge.  (iStock)

Americans are cutting back on their credit card usage for the first time in three months but are making up for it with an increase in auto credit usage, according to the latest report from the Federal Reserve.

In April, consumer credit increased at a seasonally adjusted annual rate of 5.3%, or by $18.6 billion, the report showed. Revolving credit such as credit cards decreased at an annual rate of 2.4%, while nonrevolving credit like auto loans, personal loans or student loans increased at an annual rate of 7.6%. Mortgage loans are not included in the Fed’s report. 

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The report showed that as of the first quarter of 2021, there is $1.24 trillion in outstanding auto credit, compared to $1.22 trillion in the fourth quarter and $1.18 trillion in the first quarter of 2020. 

Currently, used-car prices are up 18% year-over-year due to increasing demand for cars coming out of the COVID-19 pandemic and low supply, according to a recent report from Kelly Blue Book. As auto prices continue to increase, you can save money by lowering your auto insurance payments. Visit Credible to compare rates and lenders with the click of a button.

The biggest factor contributing to the current auto market conditions is the limited supply of used cars. According to data from vAuto, there are approximately 2.34 million used cars available in America today. That's more than 530,000 less than a year ago, and about 430,000 less than during the same period in a more normal 2019.

"America may be slowly returning to some semblance of normal, but the car market isn't," said Matt DeLorenzo, Kelley Blue Book senior managing editor. "This means that people’s prior car-shopping experiences will not be able to tell them exactly how to handle this market. If consumers are even able to find the vehicle they want right now, they need to be prepared and understand they’re likely going to pay more for it than they probably thought they would. 

"With demand high and supply low, manufacturers aren't offering as many discounts as people are accustomed to seeing; without available incentives, dealerships aren't able to negotiate as much," DeLorenzo said. "And we don't expect this to change much anytime soon – it’s going to be a lean market for quite some time."

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Similarly, a separate report from Kelley Blue Book showed new vehicle prices in April increased $864 (up 2.2%) year over year, while increasing $92 (up 0.23%) from March 2021.

Of course, historically low interest rates have helped combat some of these rising costs and helped keep monthly auto payments affordable.

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