A new car purchase may require consumers to make more place in their budgets.
According to recent data from Edmunds, the average auto loan for new cars is for 70.4 months, or less than two months less than six years, and monthly payments have risen beyond $700 for the first time ever. This research confirms findings from a combined projection from J.D. Power and LMC Automotive that was made public in late July.
“It was inevitable just because we see how much vehicle consumers are financing,” Ivan Drury, a senior manager of insights at Edmunds, said.
Why are drivers spending more money to acquire a new car?
According to the J.D. Power/LMC Automotive estimate, the average new-car purchase in July cost $45,869 dollars. This is a little less than the record-breaking $45,988 established in June.
Experts think a number of reasons are contributing to rising costs:
- Supply chain limitations: Consumer demand continues to exceed supply in the midst of a persistent shortage of computer chips required to finish today’s cars, which has resulted in increased prices. The most recent Consumer Price Index shows that the cost of new cars has increased by 10.4% over the previous year.
- Increased vehicle loan interest rates: According to Edmunds data, the average now stands at roughly 5.5%, up from 4.5% a year ago. Given that the Federal Reserve is anticipated to boost a crucial interest rate, from which many consumer loans depend, once more next month, that rate may go up a bit.
- Lessening of incentives: According to a J.D. Power/LMC estimate, manufacturer discounts have decreased to an average of $894 per vehicle, down 54.7% from a year earlier, as dealers aren’t having trouble closing deals. The average has never dropped below $900 before.
- Popularity of vehicles: Over the past ten years or so, consumers have begun to favor SUVs and trucks over sedans, maybe because they are more affordable.
How to finance a new automobile while saving money
There are a few variables to take into account that could reduce the amount you need to finance if you intend to finance the purchase of a new car.
To begin with, keep in mind that people with better credit scores can get the finest loan rates.
“Boosting your score might make all the difference in an auto loan … the higher you can get it, the better the rate you’ll be offered,” Malcolm Ethridge, an executive vice president and financial advisor of CIC Wealth in Rockville, Maryland, a licensed financial planner, made the statement.
Additionally, Ethridge added that if you intend to use dealer financing, you might be able to lower the interest rate. People probably don’t pay attention to that, he added.
Regarding the amount of car you actually require, you should also be realistic. According to him, some cars might include extras that increase the price but that you might live without.
“Pay attention to finding one that has fewer features … because that can bring down the price of the car,” Ethridge said.
Values for trade-ins are still “extremely good”
Additionally, trading in a car will lower the amount you need to borrow. It may be worth more than you think, depending on the car’s details.
Trade-in values “are still extremely good compared to what it would have been worth in typical times,” at Edmunds, Drury said. In the case of cars older than five years, “you are still thousands of dollars ahead of where you technically should be,” he added.
“If you look at a 5-year-old car five years ago versus one today, there’s no comparison,” Drury said. “You have so much equity in that car.”