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Need a car? Read on to see why you might face higher costs in the near term.
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It probably won’t shock you to read that now’s a pretty bad time to be buying a car. The automotive industry has been plagued by supply chain issues over the past few years, and any time there’s not enough of a given commodity to go around, its price tends to soar.
Such has been the case with cars for months on end. While used car prices were down 11.2% on an annual basis as per March’s Consumer Price Index, new car prices were up 6.1% annually. But keep in mind that that’s a 6.1% increase on top of already high car prices.
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In fact, the average transaction price for a new car was $48,008 in March, according to Kelley Blue Book. That’s clearly not a small amount of money. But while higher vehicle prices might cause you to spend more on a car, that’s not the only factor to consider. The cost of your auto loan might end up being more than you bargained for as well.
Borrowing rates are up on a whole
Since early 2022, the Federal Reserve has raised interest rates nine times in an effort to cool inflation. The logic is that if it becomes more expensive for consumers to borrow, whether in the form of a personal loan, home equity loan, or credit card balance, they’ll start to curb their spending. That should, in theory, allow supply to catch up to demand and lead to a slowdown on the inflation front.
The problem for car buyers, though, is that many of them need to finance a vehicle purchase because they can’t swing the cost outright — especially not at today’s prices. But in light of the Fed’s most recent rate hike in March, you may find that the cost of taking out an auto loan is downright exorbitant. So all told, your next car purchase could end up costing you more than anticipated.
How to snag a more competitive interest rate on an auto loan
If you don’t need to replace your car right now, then you’re better off waiting to buy one. But if you have no choice but to purchase a new vehicle, then it pays to do what you can to snag the lowest rate possible on an auto loan.
One way to do that is to work on boosting your credit score. Of course, if your score is already in the upper 700s or higher, then you’re probably already well-positioned to get the best rate any given lender has to offer. But if your score is lower and could use a lift, try to make that happen before applying for an auto loan.
Paying bills on time is a good way to increase your credit score. So is reviewing your credit report and having errors corrected that may be working against you.
Another way to snag a more affordable auto loan is to shop around and compare offers. While it’s true that borrowing rates are generally higher right now, ultimately, each lender sets its own rate. And you never know which lender might be willing to give you a deal to get your business.
All told, you can bank on the fact that a car purchase is an expensive prospect these days. If you go about the process of getting an auto loan strategically, you might manage to ease the financial burden just a bit.
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