The Costs of Car Buying Remain High
Automobile inventory during the pandemic took a big hit, largely because of a microchip shortage, which drove up prices to record levels. Kelley Blue Book reported that car prices reached all-time highs last summer with the average MSRP over $48,000. Since the holidays, this trend has leveled and car prices started to come down…just in time for interest rates on financing to spike.
The Fed increased the benchmark rate seven consecutive times over the past year, which increased the cost of borrowing for consumers. According to Bankrate.com, “Five-year new car loans are predicted to reach 6.9 percent and four-year used car loans to hit 7.75 percent over the coming year.”* Interest rates for people with lower credit scores will be even higher, which can mean either longer loan terms or expensive monthly payments (sometimes both).
For the average consumer, buying a car is a large expense no matter what or when. But with the challenges of the last couple of years, dealerships are still looking to recoup losses, and deals or discounts may be hard to find. It’s important to consider how much a car payment will be in this economy and whether or not it will fit into your monthly budget. As reported by Bankrate.com, the average payment for a new vehicle is around $700, while a used one is $500.** The average car insurance bill runs about $148 per month. Then there’s the price of gas, which continues to be $3.40 per gallon on average for regular. All of this can add up to a hefty chunk of your monthly budget, so be sure you’ve considered the impact on your finances.
Here are some ways you can be better prepared if you’re in the market for a vehicle:
• Make sure you know what your credit score is and fix any errors in your credit history. You can get your credit report for free once a year online at AnnualCreditReport.com.
• Get pre-approved for financing before you walk onto a car lot. You can shop for the best terms from outside lenders and have a better idea of what you can spend.
• Either bring as much of a down payment as you can or trade in your current vehicle. Be sure to research your car’s value ahead of time, taking into account age, mileage, and condition.
• Factor in all the costs of car ownership, including maintenance, gas, and insurance. Calculate ways to reduce costs, such as buying an older vehicle, buying a hybrid or electric car, or cutting back on amenities or size.
• Do your homework upfront by looking through car lot inventories online. Look for the best deals or cars that have been onsite longer. It can also be beneficial to shop toward the end of a month.
If you’re in need of a vehicle, patience, and research will be important as you start your search. Consider Lendmark Financial for a simple loan with a competitive fixed rate and easy process. You can check your financing options today without impacting your credit score.