Auto Loan Considerations
Posted on March 15, 2022 at 3:00 PM by Brian Godwin
Are you considering the purchase of a new car? Given the current environment, there are several factors to consider.
The semiconductor shortage and supply chain constraints brought on in relation to the COVID pandemic have severely diminished the availability of new cars over the last year or two and inventory is currently unable to meet consumer demand. As a result, it may take some additional shopping to find the car you are looking for- particularly one with the color and/or options that you would most prefer.
The limited availability of new vehicles in relation to consumer demand has also contributed to increased prices. According to JD Power, the average price of a new vehicle at the end of 2021 was $45,283, which was an increase of 10.3% from July 2021 and 13.4% from June 2021. Used cars have experienced an even greater price increase, rising 40% during 2021.
Fortunately, there are some positives to the current market. For instance, the increase in used car prices is likely to be applicable to your current vehicle meaning you may receive more than you had anticipated for your trade. According to Edmunds data, a three-year-old Dodge Grand Caravan is worth more than $25,000 today – up 69% from one year ago. And a Nissan Versa of the same age cost $9,842 last January but has since increased 66% to an average of $16,366. So, while your new ride might cost more, the difference between your trade and new purchase price may be less than expected.
Auto loan rates are also quite low, which may help you to find a manageable monthly payment associated with a larger loan amount than when you purchased your current vehicle. Additionally, with inflation currently running at 7.9% as of February 2022, your monthly payment of $X per month may be smaller in relation to today’s buying power than in the months or years to come.
Should you decide that you’re better off keeping your current vehicle given the supply constraints and pricing increases, you may wish to consider refinancing. With the increase in used car values, you may have greater equity in your vehicle, which could help you to qualify for a better rate tier. And, with today’s lower rates, you may be able to reduce your monthly payment or pay your car off in less time. This may provide you with greater buying power when supply constraints ease and inventory increases (which Ford predicts to occur within 2022).
However, you decide to proceed, please feel free to reach out to us at River Valley Credit Union for assistance. You may apply for a pre-approval which could aid your negotiating power with the dealer, or we can discuss your refinance options.
River Valley Credit Union, CEO