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 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 pandemic has touched every sector of the economy, and the auto industry is no exception. The average used car now sells for 42% more, according to Kelley Blue Book . The drive behind the increase is complex and linked to several events.
During pandemic, demand for new and used cars increased significantly. This was largely due to people avoiding public transportation for safety reasons. The mass exodus 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:
- 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 chipmakers to focus on the electronics industry instead of creating chips for automakers. Now, the industry is still scrambling to keep up with the automakers’ demand.
- Business and leisure travel was halted for months and this led to a steep decline in travelers renting cars. Now that rental car agencies have low inventories, they are not supplying auctions with used cars that they rotate out of their inventory.
The rise in demand and shortage of supply naturally triggered a steep increase in the prices of both new and used vehicles.
Embrace your current vehicle
If you’re in the market for a new car and the price tags are scaring you, 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.
Tips for buying a car in today’s market
Here’s what to expect before hitting the dealership.
First, a seller’s market means many dealerships will not be as eager to close a deal as they tend to be. 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 $28,000. If you’re thinking of buying a used car, be prepared for higher prices and less room to negotiate.
If you’re looking to take out an auto loan, consider one with your credit union. The most recent data shows that 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 really bank on.
In the market for a car? Apply quickly and easily at TwinStar Credit Union for a preapproval on an auto loan to gain an edge at the dealership. Learn more here.