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 lessthanideal 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 “in 2018 subprime buyers routinely made up more than 14 of newvehicle sales while deep subprime buyers were close to 10 of the market” cox automotive reports that began to shift with the arrival of the covid19 pandemic this year as interest rates have risen “subprime buyers account for roughly 6 of newvehicle 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 lowincome americans interest payments add up quickly for them in march the final sale price of the average new car was just over 48000 for a topcredittier buyer the typical loan with 10 down and a 72month term could be secured at a rate of approximately 62 for a 48000 car that would saddle a topcredit score buyer with a monthly payment of 720 the same vehicle and loan would be a very different story for a shopper with a subprime credit score with a typical subprime auto loan rate of 179 the monthly payments on the car after 10 down would jump to 983 a month over the life of the loan the highcreditscore buyer will spend about 52000 including 8700 in interest the subprime buyer would spend 70000 over the same period more than 27000 in interest payments related why getting a car loan is becoming more complicated automakers building for those who can buy math like that completely pushes subprime and deep subprime buyers out of the market knowing those buyers won’t be walking in the dealership door automakers are increasingly building more highend cars with price tags over 60000 in 2023 there are just 10 cars on the market with prices under 25000 just four the kia rio kia soul mitsubishi mirage and nissan versa start under the 20000 line before delivery fees are added that pushes buyers into the used car market there they may find some shortterm relief the wholesale prices dealers pay for the used cars they later sell dropped significantly last month a sign that retail price decreases may be coming but in the longer term our analysts expect used car prices to remain inflated for several years factors that affect the new car market change the used car market years later pandemicrelated factory shutdowns in 2021 and 2022 mean fewer used cars reaching the market today restricting supply