The New Reality: A $700 Monthly Car Payment
In May this year, the average monthly new-car payments in the US rose over $700, forcing many people to delay their plan of buying a car until the prices returned to normal. However, as the year ends, things aren’t looking exactly optimistic for these potential buyers.
As the federal funds rate continues to be raised by the Federal Reserve, auto loan interest rates have reached a 20-year high with new-car transaction prices remaining over $48,000 on average.
As per figures provided by data company Cox Automotive, average monthly new-car payments went as high as $748 in October, while average used-car payments crossed $550. The automotive research firm, Edmunds, mentioned the average car loan APR for new and used cars in October to be 6.3% and 9.6% respectively.
According to the senior manager of insights at the firm, Ivan Drury, the slight improvement in car prices hasn’t provided any respite to the buyers, since the difference has been filled up by the rising interest rates. In his words, “Even if you save $500 on a car’s purchase price, it could be obliterated on the interest rate if you don’t get the exact APR that you need”.
The Impact Of High Car Payments
While buying a new car is difficult due to the high rates, getting a used car is also becoming tougher. Senior economist Charlie Chesbrough, speaking at Cox Automotive’s quarterly auto industry call, said that “No buyer can escape these higher rates. They are being passed along to everyone, and this means that monthly payments will be pushed even higher”.
Chief economist Jonathan Smoke, while terming the combination of higher interest rates and high car prices as “lethal”, went on to say that it is excluding people with lower credit scores and less income from the car market.
However, another section of people doesn’t seem to be affected too much by the rising prices. As per a report by Edmunds, around 14.3% of buyers are choosing to go for monthly car payments of $1,000 and above when purchasing a new vehicle. An increase in consumer preferences for SUVs and cars from luxury brands is among the main factors for this shift.
Some Useful Advice For People Looking To Buy A Car
However, even as car prices and interest rates are on a rise, many individuals are unwilling to delay any more in purchasing one. In such cases, keeping a few points in mind can help in managing their budgets.
Firstly, it’s best to restrict your monthly car payment to 10% (or less) of your take-home salary. While many choose to go for a longer term to reduce the monthly payment amount, it isn’t advisable – you may end up paying way more than the car’s value due to the high interest. Secondly, make sure to apply for a loan only after comparing the interest rates offered by different lenders. Unless you do your research, you may end up paying a lot more.
Additionally, paying a sizeable amount as a down payment is recommended – ideally, it shouldn’t be less than 20% of the car price. However, in case you lack enough funds to afford a new car, going for a well-maintained used car can be a better option.
But, in case you choose to purchase a used car, it’s best to inspect it carefully. Otherwise, driving an ill-maintained car can put you at a higher risk of an accident, and you may have to get in touch with a capable Austin Car Accident Attorney to help handle the legal procedures on your behalf.