The scarce supply of new cars, high prices, and rising interest rates make cars increasingly inaccessible to many Americans.
In June, the average transaction price of a new car topped $ 48,000 for the first time, up nearly 13 percent from a year earlier, Kelley Blue Book reported this week.
And because car interest rates are influenced by the benchmark rate set by the Federal Reserve, car payments increase as the Fed raises rates to combat inflation. Most new car purchases are funded and the average monthly payment for new cars is around $ 700, a record, according to recent industry reports.
“It’s now a combination of higher prices and higher rates,” said Jonathan Smoke, chief economist at Cox Automotive, father of Kelley Blue Book.
What is happening? The availability of new vehicles continues to lag behind demand, largely due to the persistent shortage of computer chips used in car manufacturing. Other global factors are also limiting production, such as an earthquake in Japan, the continued closures of Covid-19 in China and the war in Ukraine. Smoke said the capacity is unlikely to fully recover for another year or even two. “Supply has remained a problem.”
The average price of cars is rising in part because more people are choosing luxury brands, Kelley Blue Book said. A growing proportion of wealthy buyers pay $ 1,000 a month or more, according to car website Edmunds. But for most consumers, offering a new car is “increasingly out of reach,” said Jessica Caldwell, Edmunds’ chief information officer.
Buyers have options, though. If you have a car that works well, keep driving it for a while longer. “If you can, it’s still a good time to wait” before buying a car, said Ben Preston, an automotive writer for Consumer Reports.
You can also try to plan ahead and ask the dealer to ask you for one directly from the car manufacturer, Mr. Preston. With the so-called factory order, you can choose your exact specifications, instead of settling, for example, on a color you hate just because it’s the only vehicle on the lot. You’ll have to wait at least a few months for the car, Mr. said. Preston, and you will still pay a “destination” charge to deliver it to the dealer, but you will likely minimize the dealer’s profits on the price of the sticker.
If you need a car right away, some models, such as compact cars and compact sports utility vehicles, sell for about 30 percent less than the average transaction price, Kelley Blue Book said.
Your best bet may be a used car, which had an average monthly payment of $ 555 during the second quarter of this year, Ms. Caldwell of Edmunds.
But don’t expect big deals there either. Used car prices have risen due to scarce supply in the new car market. Prices are still higher than before the pandemic, although they have recently dropped slightly, according to online car search site iSeeCars. At least one small used car, the Kia Rio, is still relatively affordable despite price increases, iSeeCars found.
Sedans used to be disadvantaged and easier to find, but that is changing. “There aren’t many sedans,” said Tyson Jominy, vice president of data and analysis at JD Power, with people taking them because they get better fuel economy.
Midwestern states generally have better prices than coastal states, so you may be able to save money if you’re willing to travel, Jominy said. Or you can try using a car racer to find the car you want in a different state.
With a limited inventory of new and used cars, “you really have to look at both,” Ms. Caldwell. Prices for new cars are higher than used ones, but interest rates are usually lower.
If you find a car you like, new or used, at a price you can afford, “buy it right away,” Ms. Caldwell said. “Don’t wait.”
A good aspect of the madness of the car market is that the exchange values are strong. Ms Caldwell said the average exchange price was nearly $ 24,000 in June, 12 percent more than the previous year.
Here are some questions and answers about car prices:
How can I get the best interest rate on a car?
Maintaining good credit is important so that you can opt for the lowest possible interest rate, said Mr. Smoke. Some dealers may still offer zero percent financing on new cars, but you’ll typically need a credit score of 760 or higher to qualify, he said. You can get a free credit report at annualcreditreport.com.
Compare loan rates between lenders and pre-qualify before buying the car, Mr. Preston from Consumer Reports, so you can check the rate you insured with the one offered by your reseller.
Can I reduce my car’s monthly payment by taking out a long-term loan?
Yes, and many consumers are doing it, Edmunds says. More than a third of buyers who financed a new car in June opted for a 73- to 84-month loan, about six to seven years. But longer loans tend to have higher interest rates, so you’ll pay more over time even if the payments are more manageable. And with longer loans, there’s more risk of going “upside down,” which means the car will be worth less than the loan balance. In other words, you could owe money if you had to sell the car before paying off the debt.
What should I do if I have trouble making payments for my car?
According to the Federal Reserve Bank of New York, delinquency rates on consumer debt, including car loans, remain low, but rose “modestly” in the first quarter of the year. If you have trouble making payments, contact your lender to discuss options, said Kristen Holt, executive director of GreenPath Financial Wellness, a nonprofit credit counseling agency based in Detroit: “It’s better to talk to the lender instead of missing out on a payment.”
If the problem is short-term, you may be able to defer payments while stabilizing your finances. With high car values, you could probably sell your car and pay off debt, and then buy a more affordable model, if you can find one. For most Americans, going to work without a car is difficult, unless you work from home or live near a city with good public transportation. If your loan rate is high, you can try to refinance. Ms. Holt said some credit unions offered lower-interest programs.