If you’re in the market for a new set of wheels, get ready to experience sticker shock. Prices on new and used cars have soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon. Here’s what you need to know about the current auto loan market and how to navigate it successfully.
Why are auto prices so high?
The coronavirus pandemic has touched every aspect of the economy, and the auto industry is no exception. According to the U.S. Consumer Price Index, the price of used cars and trucks has jumped a full 9.4% in the last 12 months, while the price of new cars and trucks increased by 1.5%.
When the pandemic hit the United States, demand for new and used cars increased significantly. This was largely due to the many people who were avoiding public transportation for safety reasons. The mass departure from big cities and their high rates of infection also boosted the demand for new cars.
At the same time, supply of new and used cars dried up, thanks to these factors.
- The pandemic put a freeze on the production of new vehicles for nearly a full business quarter. The factory shutdowns reduced output by 3.3 million vehicles and sales dried up, along with subsequent trade-ins.
- The production freeze prompted a freeze in the manufacturing of chips for automobiles and auto parts.
- Business and leisure travel was halted for months. This led to a steep decline in travelers renting cars, which in turn led to rental agencies holding onto more of the cars in their lots instead of selling them to used car dealerships.
The rise in demand and shortage of supply naturally triggered a steep increase in the prices of both new and used vehicles.
Rethink your auto purchase
If you’re in the market for a new car and the price tags are too much, you may want to rethink your decision. If your car is in decent condition, consider holding onto it a little longer until the market stabilizes. To go this route, consider the following tips to help make your car last longer.
- Use a trickle charger to keep the battery in excellent condition.
- Change your filters regularly.
- Follow the service schedule. Most cars need to be serviced every 10,000 miles.
- Keep all fluid levels high. This includes coolant, oil, antifreeze and windshield washer fluid.
- Drive carefully to avoid sudden braking and prolong the life of your brakes.
- Replace spark plugs when they begin showing signs of wear or melting. Depending on the vehicle, spark plugs need to be replaced every 30,000-90,000 miles.
- Check your tires regularly and rotate and inflate them as needed.
- Pay attention to all warning lights that are illuminated on the dashboard.
- Have your car rust-proofed to keep the exterior looking new.
If you decide to keep your current car a little longer, refinancing your current auto loan could help you lower your monthly payment, therefore, allowing you to save up for a new vehicle once the market becomes more stable. Right now, when you refinance your current auto loan from another lender, you can choose to score $100 cash or lower your rate by 0.50%. Plus, you’ll make no payments for 90 days.*
Tips for buying a car in today’s market
If you’ve decided to go ahead with buying a car, it’s best to adjust your expectations before hitting the dealership.
First, a seller’s market means many dealerships will not be as eager to close a deal as they had been. They have more customers than they can service now, and that can translate into a willingness to move only slightly on a sticker price of a car, or a refusal to negotiate a price at all. Processing a car loan may now take longer, too.
Second, expect to pay a lot more than usual for your new set of wheels. If you’re looking to purchase a new car, prepare to pay approximately $40,000. Also, as mentioned, supply of new cars is down while demand is up, so you likely won’t have as many choices as you may have had in the past.
The used-car market has been hit even harder by the pandemic since prohibitive prices and a short supply has pushed more consumers to shop for used cars instead of new vehicles. This increase in demand, coupled with the dwindling supply, has driven the prices of used cars up to an average of $23,000, according to Edmunds.com. If you’re thinking of buying a used car, prepare to encounter a highly competitive market where bidding wars are the norm and cars are super-expensive.
If you’re looking to take out an auto loan, consider one with your credit union. The most recent data shows auto loans at credit unions are a full two points lower, on average, than auto loans taken out through banks. Car prices may be soaring, but credit unions continue to deliver lower rates and customer service you can count on.
The auto loan market has been hit hard by the coronavirus pandemic. Following the tips here can help you navigate today’s car market successfully.