Used car interest rates pumping brakes on car buying enthusiasm –

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With average interest rates tipping scales at 13% for used cars and 12% for new ones, dealerships have more inventory but not necessarily lower prices.

In the market for a new car? Sticker shock might curb your enthusiasm. 

Car lots have more inventory than they did during the pandemic, but car loans are pumping the brakes on quick sales. 

The market today

“Since 2020, the car buying market has been a roller coaster. Low inventory in 2020 and 2021 made prices sky rocket, then another blow to consumers came when the Federal Reserve, in an effort to bring down inflation, started to raise interest rates,” explained financial literacy author Ja’Net Adams.

Adams said today, consumers must thoroughly research the market and rates before stepping foot on a dealership lot.

Used car loans are, ironically, more expensive than new car loans. Adams again blamed the rising interest rates, which the Fed needed to cool the economy. That reality has brought the average interest rate to up to 12 percent for a new car and 13 percent for a used one.

“Car dealerships went from no cars on the lot to having inventory to sell,” she noted.

More inventory, lower prices?

Higher inventory typically means lower prices, which is the supply and demand trend affecting the housing market, but the same is not necessarily true for the car market.

“In this case, the interest rates on cars is tied to the Fed…as long as inflation is not at two percent, the interest rates are going to stay at the current level, and the only relief a consumer could see is if the car dealership lowers the price on a car. Good luck with that!” she said.

Shopping with strategy

If buying another vehicle is necessary right now, Adams suggested the consumer strategize to get the most out of his or her money in this current climate.

“Instead of trying to get a new car, go after a used car that is a little lower in price. Although it may come with a slightly higher interest rate, you will pay less money over time. Staying with the used car option, you also can save up enough money to buy the car in cash…(so) you don’t have to worry about interest rates….” she suggested.

Ultimately, she emphasized having a strategy will help consumers stay in the fast lane in the car buying game.

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