In response to the inflation caused by the pandemic, the Federal Reserve has made several
interest rate hikes as a way to taper it back down. These rate hikes are significantly affecting car
buyers, especially those with lower incomes and those with lower credit scores. So, if it’s time
for you to head to local car dealers to upgrade your ride, here is what you need to know.
Rising Monthly Payments
During the pandemic, we saw the price of new and used cars rise to unprecedented highs.
Limited supply and high demand drove the numbers up, and even though they have come
down, the ticket price of cars is still not down to where it was before the pandemic. Now, the
rising interest rates are adding even more to the cost of a vehicle. Car buyers are getting hit on
both sides, and it is making it more difficult for car shoppers to get into the car that they want.
Bad Credit Loans
The high interest rates are even more of an issue for buyers who don’t have the best credit.
With rates continuing to rise and prices still high, consumers who have low credit scores have
essentially been priced out of the new car market. Interest rates are already higher than the
average person can afford, and if you have bad credit, the rates are even higher. In some cases,
you can pay up to $10,000 or $20,000 more over the life of the loan if you have bad credit.
These numbers create a situation where the only car buyers who can afford to buy new cars are
those with high credit scores.
Buyers Changing Buying Habits
Since their primary buyers have money and good credit, auto manufacturers continue to design
and build cars for this market, creating and adding to the cycle. New car lineups are more
expensive than ever, with affordable options almost completely disappearing. This keeps the
other half of the consumers stuck in the used car market.
The rising federal interest rates are having the desired effect in some parts of the economy, but
it puts the new car market at a disadvantage. Affordability is a significant factor in the decline in
auto sales during 2022, and the beginning of 2023 is looking to be about the same.
The Good News
The good news for car shoppers and car dealers is that things will change. There are people
who are willing and able to pay the higher rates, and lenders are making money. While prices
and the economy have not stabilized yet, it will. If you want a new car and have time to wait,
you’ll be rewarded eventually with lower prices. The Fed has indicated that it may slow the rate
increases, and once demand cools down, vehicles will return to more normal prices.
These lower prices could come as early as the latter part of 2023. Just be patient and give the
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