Most Americans depend on cars to get around, but recent data shows purchasing a new vehicle may now be out of reach for average earners.
Although demand for new cars has increased since the start of the COVID-19 pandemic, the inventory for cheaper vehicles is low due to the lack of a key component used to make most vehicles.
Why Are Car Prices Rising?
A shortage in computer chips, which are used to control windows, navigation screens, and passenger screen sensors, caused by the pandemic led to the spike in car prices, NPR reported.In the early part of the pandemic lockdown, when most employees were working from home, car sales plummeted, and automakers cut back on orders for chips. During the same time, people bought laptops, iPads, TVs, and other electronic goods, so chip manufacturers shifted their production to serve companies that make those products.
How Are Car Payments Determined?
When shopping for a car, many buyers rely on loans from a bank or dealer to finance their purchases.Auto loan interest rates, said Investopedia, can significantly increase the total cost of a car. Here’s what to know.
—The best way to get a lower rate is to improve your credit score. If you have a low credit score, you should consider holding off on a car purchase.
—If you have a lower debt-to-income ratio, or the amount of money you spend on monthly debts compared to your monthly income, you’re more likely to get a lower rate.
—Loans for used cars have higher interest rates than those for new cars, since used cars have a lower resale value.
—Longer loan terms usually have higher interest rates.
Can You Negotiate the Interest Rate on an Auto Loan?
Like the price of a vehicle, the interest rate is negotiable, according to the Consumer Financial Protection Bureau.The first-rate for the loan a dealer offers you may not be the lowest rate you qualify for, so it’s best to ask for a loan with better terms, the CFPB says. Since dealers and lenders are not always required to offer you the best deal, negotiating could save you thousands of dollars over the life of the loan.