There are some really good signs that the auto market is finally turning around in favor of buyers. Dealers are sitting on a lot of inventory, And Special deals for slow-selling electric vehicles. Unfortunately, interest rates are still high, and that can really make the difference in what’s affordable versus what’s not.
Based on Edmunds.com over the past six months, the average interest rate on a new car loan has been around 7%, while used car loans have averaged around 11%. Of course, keep in mind that these are overall averages calculated from people with very low to very high credit scores. If your FICO is higher than 700, you should do a little better, but if you have some credit challenges, you may be looking at a seriously high auto loan.
NerdWallet there is a chart through Experian that provides a breakdown of the average ratio per credit profile.
So what does all this mean for those in the car market? I’ve said many times in the past that in order for buyers to avoid “overpaying” for a car, they need to honestly consider their financial situation and set a budget accordingly. The way most people do this is to start with a comfortable car payment and work against the total price. However, with these rising prices, this often means a car that’s cheaper than many people expect.
For example, in an earlier market, someone had 720 FICO credit can get special maker of 1.9 APR for 60 months on a brand new car and feel comfortable with a $500 monthly payment. This buyer can buy a car for about $28,600. Using the current average rate of about 5.2 percent and similar terms, that $500 per month goal means the budget needs to drop to $25,600. While that $3,000 drop may not seem like much, it could mean the difference between buying a new car or switching to a used car.
For used car buyers, the situation is even more difficult. Let’s say you’re a buyer with low credit and a FICO of just under 660 and are targeting $400 monthly payments. In a previous market, you might qualify for a loan of about 8 percent, with a term of 60 months that would bring you a total spending budget of just under $20,000. Finding a decent used car for $20k isn’t easy but it’s certainly doable. Right now, that buyer can get a 13 percent loan, which reduces that budget to $17,500. That puts them in an even tougher market. For those with less than perfect credit, not only are rates much higher, there’s a chance they might not even be approved for a loan.
While some automakers are starting to advertise special programs with low APRs, typically the fine print indicates that these rates are only good for short-term loans of 36 months or less. With another rate hike likelyIt is more important than ever for consumers to have a complete look at their budget before they visit a agency. And it’s always a good idea to purchase your loans between local banks and credit unions in addition to the financing options the agent may offer.
Tom McParland is a contributing writer for Jalopnik and moderator AutomatchConsulting.com. He has no trouble buying or renting a car. Have a car buying question? Send it to [email protected]
