The COVID-19 pandemic had severe effects on the car market and we continue to see its influence on car and interest rates even as 2022 comes to a close. Supply chain issues have led to increasingly high new and used car prices for buyers everywhere. However, market prices seem to be slowly coming down, and it’s looking like things might return to normal soon.
If you’re considering getting a new vehicle, the recent hike in interest rates and car prices might have you hesitating. Car prices are slowly but surely trending downward and vehicle costs may start returning to normal in 2023. However, while things seem to be getting better for car prices, it’s unclear if car interest rates will also lower in the coming year.
Let’s go over the basics of how to buy a car during these unusual times so you can get the best possible deal on your next vehicle.
Interest Rates and Buying a Car
Buying a new vehicle is about more than just the sticker price. Most car buyers will need an auto loan to get their new or used vehicle, which means factoring in an interest rate. Due to supply shortages, car prices and interest rates on cars have skyrocketed over the past few years.
In the first quarter of 2022, used cars had an average auto loan rate of 8.62%, while new car loans hit an average rate of 4.07%. While those rates are down slightly from 2021, they’re still higher than many consumers are used to seeing. With the Federal Reserve raising interest rates once again, buying a car will be more expensive than ever for consumers.
If your credit score is high, you won’t see much change in interest rates when buying a car. However, anyone with a less-than-ideal credit score may have higher interest rates on their auto loans. In that case, you’ll want to hold off on buying a car until average car prices and interest rates drop. You might also consider shopping around to find lower interest rates. It could take some time, but looking for the best deal can save you lots of money when it comes time to buy your car.
When Will Car Prices Drop?
While predicting the best time to buy a car isn’t an exact science, experts predict potential price drops in 2023. The average price for new and used vehicles should continue to drop, though they’ll come down at different times. The age of the car you’re interested in buying will influence when you’ll be able to get the best deal in the coming months.
Experts predict that new car prices will stay high through 2022. While raw material costs are slowly falling, shipping, labor and electricity costs are still higher than usual. Since the raw material and chip shortages depleted car stock, it will take some time for suppliers to replenish their offerings. Prices will stay high until there is enough new car stock to meet consumer demand.
Used car prices initially shot up due to the shortage of affordable new cars on the market. When consumers couldn’t get the new vehicles at the prices they wanted, they turned to the used car market. With so many consumers attempting to buy used cars, prices rose dramatically. Now that the new car shortage is starting to end, the used car market will decrease in price. We should see lower used car prices much earlier than declining new car prices — consumers will have the cars they want and the prices will come down.
While new and used car prices should fall within the year, consumers who bought during this time or who have existing auto loans might not see a reduction in their monthly costs. Anyone who purchased a vehicle in the past year or two will probably have high car interest rates. As a result, they’ll still have higher-than-average monthly payments unless they cannot refinance their loan or trade in their car for a better deal once prices drop.
Tips for Buying a Car in 2023
Although supply chain issues have started to decline, new car prices might only come down slightly in 2023. You’ll want to get a complete understanding of the market and your next car before deciding to buy. Avoid going into the car market blind — you want to be as prepared as possible to ensure you get the right deal.
1. Do Your Research
Research is essential for anyone buying a car in any market. The only way to know if car prices are going your way is to keep an eye on them — if you want a good deal, you’ll have to track car prices regularly. Use different car sale sites to learn what similar models are going for. Once you land on a price you like, make sure to cite that price and website to the dealership. They might bring their price down to match.
Never go into car-buying blind — always make your purchase with your head instead of emotions. Test drive the car, look into market prices, ask about the car’s history and shop around for the best deal. Car buying can be confusing and you must be as prepared as possible when heading to the dealership and reviewing the final paperwork.
2. Consider SUVs
While used vehicle prices are still up significantly, SUVs are only up 19% compared to their original price forecast. With a lower price than similarly sized vehicles like trucks and minivans, you can pay a much more reasonable price for a used SUV.
It’s important to consider both the benefits and drawbacks of purchasing an SUV. While you’ll get extra space in your car for a lower up-front payment, SUVs use more gas than many other vehicles. Based on your local gas prices and how much you drive, the cost of gas may offset your initial savings.
3. Leverage Your Current Vehicle
Buying a car is expensive right now, which puts your current vehicle in high demand — it’s a great time to sell your current vehicle if you can. Dealerships are still dealing with supply shortages and often overpaying for used cars in used condition, especially if they’re only a couple of years old. You may even be able to sell your car for more than you bought it if it’s a hot ticket item.
Selling your car will give you a nice financial boost, helping you get enough money to purchase a new car with better features than your current one.
4. Buy Used
Modern cars are incredibly durable, gas-efficient and safe. A used car in good condition can last you a decade if you take care of it correctly. You’ll typically get better deals on used cars, which often run just as well as new ones. While getting a brand-new vehicle can feel luxurious, you can save money without sacrificing quality when you buy a used one.
5. Look at Interest Rates
While you can often negotiate used cars down much more than new ones, used cars typically have higher interest rates than new ones. Interest can quickly eat into your monthly budget, taking finances away from other necessities, so shopping around for the best rate you can get is crucial.
If you can afford a new vehicle next year, you might want to buy one. While used cars are better price-wise for most buyers, you’ll almost always get a lower interest rate with a new vehicle. It’s best to factor in the interest rate when comparing new and used vehicles during the car-buying process.
6. Be Patient
The used car market isn’t going to come down in price overnight. Be patient for a few more months once 2023 comes around. The longer you can wait, the more likely you’ll hit on a good time and snag a great deal.
You should buy a car right now only if you absolutely need one. Otherwise, feel free to wait and watch for the best price to come your way. Waiting for a more favorable time will allow you to save money, build better credit and do more research. You won’t rush into any bad deals and will have a much less stressful time car shopping once the market comes down.
Here are some answers to common car-buying questions for vehicle shopping in 2023. They’ll help you narrow your search and prep you for future car buying. Remember that there’s no hurry to buy a new car — waiting until 2023 will let you consider more loan and car options.
Should I Buy a Car Now or Wait?
Used car prices have been steadily declining, but they’re still higher than usual. Kelly’s Blue Book expects used car prices to drop further in 2023, making them more affordable for buyers.
While prices in the used car market have come down slightly, you should wait at least a few months before buying a new or used car. It’s still more of a seller’s market than a buyer’s, and prices are likely to drop further. If you need a vehicle within the next few months, buy a used one. The used car market is coming down much quicker than new car prices, and you’ll likely be able to negotiate a better deal.
Will New Car Prices Drop in 2023?
While used car prices should drop in 2023, experts expect new car prices to continue rising in 2023. The new car market isn’t showing any signs of coming down immediately — buyers can expect prices to keep climbing for the next few months.
Is Buying a New Car Worth It in 2023?
You have less room to negotiate with newer cars, so you’re unlikely to get as good a deal as you would with a used car. New cars are still selling far above their usual prices and car dealerships won’t bring the price down while new cars are still in short supply. Waiting well into 2023 might save you hundreds or even thousands of dollars. Hold out, do your research and track your preferred car to ensure you’re getting the best price in the coming year.
What Should You Avoid When Buying a Car?
Avoid getting a car or taking out a loan that stretches your budget too thin. Monthly payments and high-interest rates quickly add up, so avoid buying a car when the market is high and getting stuck with excessive interest rates.
Play the waiting game and know you can always walk away from a deal you don’t like. If you’re patient and learn everything you can, you’ll find yourself in a much better position.
Consider Refinancing Your Car
Investing in a new or used car while the vehicle market is still high can end up costing you more. Choosing to refinance your loan instead of getting a new car often allows you to set terms that better fit your budget. Refinancing can help you clear your loan debt earlier, while buying a new vehicle often leaves you with more debt and stress.
Refinancing is a great way to renegotiate the terms of your auto loan to get lower interest rates, better monthly payments and overall improved terms. Since the market has yet to come down to normal, refinancing could be your best, most cost-effective option. Try refinancing before buying a new or used car and get more out of your vehicle without the extra expense of a new car.
Some of the best refinancing benefits include:
- A lower monthly payment.
- Adding or removing a co-borrower.
- Cash back from the equity in your car.
- Reduced interest rates.
- Paying off your loan earlier.
Refinancing is a great option for anyone dealing with a recent auto loan, letting you save money and time instead of taking on another high-interest loan. Refinancing will give you better terms for your vehicle and you won’t have to deal with the stress of buying a car in a pricey market.
Are You Eligible for Auto Loan Refinancing?
If you’ve recently bought a car, you were probably stuck with a high-interest auto loan. Unfortunately, the market increase has left buyers with the short end of the stick. However, you might be eligible for refinancing if you have an auto loan.
Refinancing with RefiJet saves you time and money. Our refinancing solutions securely and efficiently use your data to compare loans from multiple possible lenders, finding the best deal for your loan. RefiJet’s industry-leading call center and custom application process system allow us to handle your loans and loan questions effectively. We’ll work with lenders to give you the best refinancing terms possible, so you can enjoy the savings you deserve.
Use our online eligibility tool to see if you’re eligible for refinancing today.