Should you buy now or wait to save on a car?
Should you buy now or wait to save on a car?
Shoppers are usually advised not to upgrade their cars too often due to the wear of new cars. Historically, the most financially responsible course of action was to stick with the car for as long as possible and buy a used car instead of a new one -
but does this advice still apply amid the ongoing inventory shortage?
The scarcity of new cars has caused a huge rise in used car prices and trade values over the past year. This means that your used car can be worth nearly as much as its new counterpart today, which may help offset the higher prices for new cars.
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| Should you buy now or wait to save on a car |
Should You Wait to Buy a Car?
Whether it's in your best interest to take advantage of higher commercial values or wait until the inventory shortage improves depends on several factors: the vehicle you're trading in, the vehicle you're looking to buy, and how long we're willing (and able) to wait to buy that new vehicle. .Why buy now?
Cars-Q2-2022-09-Sale ServiceCar shopper test drive | Cars.com image by Christian Lantry
Even with new car prices at record levels and inventory plummeting, some shoppers will benefit from buying a new car sooner rather than later—particularly those with the ability to trade it in. This is because a generous trade-in value can help offset the higher new car prices. At the same time, car loan rates are poised to rise in the near future along with monthly car payments.Your consumption trends for dollar trading
New car depreciation rates vary widely,
but under normal circumstances a new car loses an average of 20% of its value after the first year and continues to decline by about 10% until it reaches the five-year mark, according to Experian. This means that a 5-year-old used car will typically retain about half its initial value.
But these aren't normal conditions: Inflated used-car values mean your car swap can now be worth more than the depreciation formula suggests. According to a recent J.D. Power sales report, shares traded averaged nearly $10,000 in May, up 59% from the previous year, and higher business values could help offset some of the premiums for new auto insurance.Average used-car prices among Cars.com dealers show a similar trend:
The average used-car price in May was $25,095 — a 47% jump from May 2019, which preceded production challenges related to the pandemic. Although high used-car prices bode bad news for budget-conscious shoppers, the bright side is that dealers are likely to offer generous swap offers in an effort to fill their quotas.
Another consideration is how quickly the value of your used car will rise. According to a Cars.com survey, nearly two-thirds of car owners who traded in their cars received a higher-than-expected bid: nearly half earned $1,000 more than expected, and 20% earned $3,000 or more. According to Cars.com data, the top five cars with the fastest-rising resale value are the 2018-21-year model variants of the Tesla Model 3, Kia Optima, Toyota RAV4 Prime, Tesla Model Y and Toyota Corolla.
"Many components come from one source, so problems with one supplier can hinder production at many automakers," Jomini wrote in an email to Cars.com.
Because of these ongoing challenges, production is not expected to return to normal until 2023 and inventory levels may not recover until the second half of 2023. It is likely that significant monetary stimulus will not appear again until inventory levels are restored and new car prices may not recover and continue to climb. in this period. meantime.
"There are still many incentives out there, but perhaps automakers use them differently," Jomini wrote. "Some incentives will encourage consumers to use the automaker's captive lender, [however] none of those incentives are significant leverage." These incentives are not likely to return en masse until the second half of 2023, when inventory levels are expected to rise above the 2 million threshold. [But] until then, we don't expect a very large cash return.”
“As a general rule, every [1%] increase in interest rates either lowers purchasing power by about $1,250 or increases monthly payments by $20,” Jomini wrote.
Another consideration is how quickly the value of your used car will rise. According to a Cars.com survey, nearly two-thirds of car owners who traded in their cars received a higher-than-expected bid: nearly half earned $1,000 more than expected, and 20% earned $3,000 or more. According to Cars.com data, the top five cars with the fastest-rising resale value are the 2018-21-year model variants of the Tesla Model 3, Kia Optima, Toyota RAV4 Prime, Tesla Model Y and Toyota Corolla.
New cars may become more expensive
New-vehicle inventory challenges initially stemmed from a global shortage of microchips, but cascading supply chain problems continued to drive prices up. According to Tyson Gomini, vice president of data and analytics at J.D. Power, parts and components such as tires, paint resin, wire harnesses and seats are lagging in factories."Many components come from one source, so problems with one supplier can hinder production at many automakers," Jomini wrote in an email to Cars.com.
Because of these ongoing challenges, production is not expected to return to normal until 2023 and inventory levels may not recover until the second half of 2023. It is likely that significant monetary stimulus will not appear again until inventory levels are restored and new car prices may not recover and continue to climb. in this period. meantime.
"There are still many incentives out there, but perhaps automakers use them differently," Jomini wrote. "Some incentives will encourage consumers to use the automaker's captive lender, [however] none of those incentives are significant leverage." These incentives are not likely to return en masse until the second half of 2023, when inventory levels are expected to rise above the 2 million threshold. [But] until then, we don't expect a very large cash return.”
Expect higher interest rates
On top of rising prices for new and used cars, auto loan rates are also on the rise and are expected to rise after the Federal Reserve's latest rate hike - the largest since 1994. According to JD Power, the estimated average interest rate for May rose. By 4.92%, or 0.62% more than the previous year. Additional price increases will contribute to an increase in the monthly car premiums:“As a general rule, every [1%] increase in interest rates either lowers purchasing power by about $1,250 or increases monthly payments by $20,” Jomini wrote.
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