Finance
Consumers see higher auto payments in exchange for better borrowing rates
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.
Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
Chris Ratcliffe | Bloomberg via Getty Images
Klarna saw its losses jump in the first quarter as the popular buy now, pay later firm applies the brakes on a hotly anticipated U.S. initial public offering.
The Swedish payments startup said its net loss for the first three months of 2025 totaled $99 million — significantly worse than the $47 million loss it reported a year ago. Klarna said this was due to several one-off costs related to depreciation, share-based payments and restructuring.
Revenues at the firm increased 13% year-over-year to $701 million. Klarna said it now has 100 million active users and 724,00 merchant partners globally.
It comes as Klarna remains in pause mode regarding a highly anticipated U.S. IPO that was at one stage set to value the SoftBank-backed company at over $15 billion.
Klarna put its IPO plans on hold last month due to market turbulence caused by President Donald Trump’s sweeping tariff plans. Online ticketing platform StubHub also put its IPO plans on ice.
Prior to the IPO delay, Klarna had been on a marketing blitz touting itself as an artificial intelligence-powered fintech. The company partnered up with ChatGPT maker OpenAI in 2023. A year later, Klarna used OpenAI technology to create an AI customer service assistant.
Last week, Klarna CEO Sebastian Siemiatkowski said the company was able to shrink its headcount by about 40%, in part due to investments in AI.
Klarna is synonymous with the “buy now, pay later” trend of making a purchase and deferring payment until the end of the month or paying over interest-free monthly installments.
Nikolas Kokovlis | Nurphoto | Getty Images
The U.K. government on Monday laid out proposals to bring short-term loans under formal rules as it looks to clamp down on the “wild west” of the buy now, pay later sector.
Fintech firms like Klarna and Block’s Afterpay have flourished by offering interest-free financing on everything from fashion and gadgets to food deliveries — while at the same time stoking concerns around affordability. The space is highly competitive, with U.S. player Affirm launching in the U.K. just last year.
City Minister Emma Reynolds said in a statement Monday that the U.K.’s new rules were designed to tackle a sense of “wild west” in the buy now, pay later (BNPL) space, adding the measures “will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs.”
Under the U.K. proposals, BNPL firms will be required to make upfront checks to ensure people can repay what they borrow and make it easier for customers to access refunds.
Consumers will also be able to take BNPL complaints to the Financial Ombudsman, a service created by the U.K. Parliament to settle disputes between consumers and financial services firms.
The rules are expected to come into force next year, according to the government.
Klarna said it has long supported calls to bring BNPL into the regulatory fold. “It’s good to see progress on regulation, and we look forward to working with the FCA on rules to protect consumers and encourage innovation,” a spokesperson for the company told CNBC via email.
“Regulation will give clarity and consistency to the sector, establishing a consistent operating environment and compliance standards for all providers,” spokesperson for Clearpay, the U.K. arm of Afterpay, said in an emailed statement.
“It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.”
While buy now, pay later firms have publicly expressed support for regulation, many were concerned about regulators applying outdated rules to their business models. The Consumer Credit Act, which regulates lending and borrowing in the U.K., has existed for over 50 years.
For its part, the government said it plans to adapt the Consumer Credit Act to allow for a “modern, pro-growth framework that reflects how people borrow today.”
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