Finance

Consumers see higher auto payments in exchange for better borrowing rates

Published

1 year ago

May 1, 2024

Business Finance News

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Car loan terms have shortened, but monthly payments have risen. (iStock)

Higher interest rates have dimmed the appeal of longer-term loans even for borrowers with good credit, according to a recent Experian report.

Instead, they pay more monthly for a shorter term in exchange for a better interest rate, according to Melinda Zabritski, Experian’s head of automotive financial insights. The Federal Reserve has raised interest rates 11 times since 2022 to bring soaring inflation down to a 2% target rate. That has translated into higher borrowing costs for everything from car loans to mortgages.

Loans of 48 months or less had the lowest new-vehicle financing costs for the fourth quarter of 2023 and these loans correlate with higher credit scores, according to Experian’s report. Conversely, loans that stretch 84 months — or even longer — paid the highest interest rates.

“With interest rates remaining at elevated levels, it’s natural to see consumers continue to opt for shorter-term loans,” Zabritski said in a statement. “While consumers may spend more on their monthly payment, the overall cost of a vehicle is much lower. As the market continues to change, lenders and dealers need to watch the trends carefully to properly assist in-market shoppers.”

If you’re trying to lower your overall auto costs, you could consider switching auto insurance providers. You can visit Credible to compare quotes from different companies without affecting your credit score.

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Negative equity adds to affordability challenges

Higher borrowing rates continued to push the share of new-car shoppers paying $1,000 or more above 17% for the fourth straight quarter, according to a recent Edmunds report.

Moreover, buyers locked into these high monthly payments face a growing risk of negative equity. Negative equity or being underwater on a car loan means that what a borrower owes on financing exceeds the vehicle’s value. The average negative equity on vehicle trade-ins rose to a record high of $6,167 in the first quarter of 2024.

“The resurgence of negative equity is only compounding the affordability challenges, as consumers who regretted their pandemic-induced purchases are now encountering lower-than-expected vehicle values when returning to dealerships for a new purchase,” Edmunds head of insights Jessica Caldwell said.

If you are looking to save money on your car costs, you could consider changing your auto insurance provider to get a lower monthly rate. You can visit Credible to shop around and find your personalized premium without affecting your credit score.

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Drivers paying high insurance costs

Drivers paid an average of $1,841 to insure a car in 2023, or 5% more than they did the previous year, according to a recent report from the Zebra. That comes after a 15% jump between 2022 and 2023.

The same factors driving increases in the previous two years are pushing costs up this year. Inflation has impacted auto repair costs, and drivers are submitting more significant claims. States more affected by climate-related disasters have seen a higher incidence of insurance providers pulling out or writing new policies, leaving buyers with fewer options for insurance shopping.

The make and model of a vehicle have also greatly impacted car insurance costs. Drivers of Kia and Hyundai cars have had difficulty insuring these vehicles because specific models are highly prone to theft.

Are you shopping around for new auto insurance? The Credible marketplace can help you compare multiple providers and find your personalized rate in minutes without affecting your credit score.

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Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

Finance

UK’s FCA teams up with Nvidia to let banks experiment with AI

Published

4 hours ago

June 9, 2025

Business Finance News

Jakub Porzycki | Nurphoto | Getty Images

LONDON — Britain’s financial services watchdog on Monday announced a new tie-up with U.S. chipmaker Nvidia to let banks safely experiment with artificial intelligence.

The Financial Conduct Authority said it will launch a so-called Supercharged Sandbox that will “give firms access to better data, technical expertise and regulatory support to speed up innovation.”

Starting from October, financial services institutions in the U.K. will be allowed to experiment with AI using Nvidia’s accelerated computing and AI Enterprise Software products, the watchdog said in a press release.

The initiative is designed for firms in the “discovery and experiment phase” with AI, the FCA noted, adding that a separate live testing service exists for firms further along in AI development.

“This collaboration will help those that want to test AI ideas but who lack the capabilities to do so,” Jessica Rusu, the FCA’s chief data, intelligence and information officer, said in a statement. “We’ll help firms harness AI to benefit our markets and consumers, while supporting economic growth.”

The FCA’s new sandbox addresses a key issue for banks, which have faced challenges shipping advanced new AI tools to their customers amid concerns over risks around privacy and fraud.

Large language models from the likes of OpenAI and Google send data back to overseas facilities — and privacy regulators have raised the alarm over how this information is stored and processed. There have meanwhile been several instances of malicious actors using generative AI to scam people.

Nvidia is behind the graphics processing units, or GPUs, used to train and run powerful AI models. The company’s CEO, Jensen Huang, is expected to give a keynote talk at a tech conference in London on Monday morning.

Last year, HSBC’s generative AI lead, Edward Achtner, told a London tech conference he sees “a lot of success theater” in finance when it comes to artificial intelligence — hinting that some financial services firms are touting advances in AI without tangible product innovations to show for it.

He added that, while banks like HSBC have used AI for many years, new generative AI tools like OpenAI’s ChatGPT come with their own unique compliance risks.