If you’re looking to buy a car right now, well, don’t — not if you can help it. Not only are car prices pretty high, but borrowing is expensive on a whole following a string of interest rate hikes from the Federal Reserve.
Now in time, the Fed is expected to start cutting interest rates. Once that happens, loans should be less expensive to put in place across the board.
But the Fed may not begin to cut interest rates until well into 2024 — possibly not until after the midpoint of the year, even. So those savings may not become available for quite some time.
As such, it’s best to put off a car purchase. But what if you can’t?
If you rely on your car to get to work and just plain function, and you have an older vehicle in need of an expensive repair, then it may not make sense to shell out the money. In that case, buying a replacement car could be a savvier financial move. And the good news is that there are steps you can take to save money on a car purchase even at a time when prices and borrowing rates are up.
1. Buy a used car instead of buying new
The average new car buyer in America paid $47,936 in October, according to Kelley Blue Book (KBB). The average used car in America, meanwhile, had a list price of $26,533 in October, KBB reports.
Buying a new car has certain benefits, like getting a warranty and effectively having protection against major repairs for your first few years after driving that car off the lot. But given the cost difference between new cars and used ones, the latter might save you a bundle.
2. Don’t pay for added features you don’t need
If you’re buying a new vehicle, expect to be upsold on a variety of features — an awesome speaker system, a superior navigation system, and heated and cooled seats. These features may be nice to have, but they could also drive the cost of your vehicle way up. If you’re worried about affording a new auto loan, then try to avoid the temptation to pay for extra features.
Remember, too, that the more features your car has, the more opportunities there are for something to break. If your heated seats stop heating, that’s something you might eventually have to pay to fix. If your seats don’t heat up in the first place, well, you won’t have to worry about that.
3. Boost your credit score for a better auto loan rate
The higher your credit score at the time you apply for an auto loan, the more favorable your interest rate is likely to be. This doesn’t mean that if your score is 805, you need to push yourself to get that number as close to a perfect 850 as possible. An 805 is already a really great score.
But let’s say your credit score is 680. Getting it into the mid- or upper-700s could result in a less expensive car loan for you.
One of the best ways to boost your credit score is to pay bills on time regularly. But if you need a new car ASAP, you may not have months and months to work on boosting your credit score.
However, paying off a chunk of credit card debt, if you’re able to, might result in a fairly quick lift. Correcting errors on your credit report might also raise your score fairly quickly.
It’s currently not the best time to buy a car. But if that’s the situation you’re in, make the best of it. Shop around for used vehicles before committing to a new one. And if you decide to buy new, don’t pay up for every added feature you’re offered. Also, no matter what your credit score looks like at the time of your auto loan application, compare rates across different lenders so you can walk away with the best deal possible.
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