Gephardt Busts Inflation: Affording a car when prices and interest rates remain high
Oct 18, 2023, 10:51 PM
SALT LAKE CITY — No matter how desperately we try to hang onto our old set of wheels, there just comes a time for many of us where we have to buy a car. But if car shopping has left you feeling sticker shock lately, you’re far from alone.
Kelley Blue Book says the average price paid for a new car last month was $47,899.
Price isn’t the only shocker.
The average interest rate for a new car loan in Utah is 7.3% percent according to automotive website, Edmunds. For used cars, the average interest rate has climbed to 10.52%.
“They’re incredibly high,” said certified financial planner Shane Stewart of Deseret Mutual Benefits Administrators. “Especially since our recent bias says they’re supposed to be around 3% because that’s what they have been in the recent history.”
Stewart called it a perfect storm of costs of goods going up.
“Higher rates, more expensive cars, we’re seeing monthly payments increasing significantly in the past year,” he said.
The average monthly payment on a new car is now $730 according to Edmunds. That figure is $551 for used vehicles. However, 17.1% of new car buyers are paying $1,000 a month or more.
“It’s very tempting to rationalize and say, ‘I need a car. I need to get to and from point A to point B – even if it’s for work – and talk yourself into maybe more car than you can afford,” Stewart said. “Usually, we see folks who are behind in payments or starting to get behind in their debt usually have talked themselves into more car than they could afford.”
One way to make a car more affordable is to boost the down payment: A few thousand dollars added to your trade-in means a lower monthly payment. Even better, says Stewart, pay in cash.
“Putting money away now and purchasing your car in the future with cash is a way to combat these high-interest rates and high costs of car,” he said. “The upside of having rates high as you get better rates of return on your savings, bank or credit union, or online. If you’re paying yourself, you can miss a payment and you can wait to make a payment if money gets tight.”
Also, a bank or a credit union might offer better financing than a dealer. And your credit score will have a big say in your interest rate.
“Scrutinize your own credit score and see what you can do to better that score. Figure out ways to bring that score up by paying off debts, fine-tuning,” said Stewart.
Another big thing is to shop around. Look at various dealers.
“Things are starting to slow just a bit in the economy, and you might have some bargaining power, you might be able to say, ‘I’ll buy this car if I can get this rate,’” Stewart advised.
If you can’t afford the monthly payment on a new car, Stewart says consider putting your money towards fixing up a car you already have. It’ll put you on the road again without a hefty car payment for five, six or more years.
