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Inflation has caused many consumers to change their financial habits. Some people have had to cut back on leisure spending over the past year or so to cope with higher living costs. And 24% of consumers have delayed purchasing a vehicle over the past year, according to a July survey by Santander.
That's not surprising. Lingering supply chain issues have driven up the cost of new vehicles to a large degree. So it's not shocking to see many people putting off car purchases for the time being.
You may be thinking of swapping your existing vehicle for a new model. But waiting might work to your financial benefit in a very big way.
Car prices could come down
The average transaction price of a new vehicle was $48,334 in July, according to Kelley Blue Book. That's a 0.4% increase from a year prior.
Auto production slowed down during the pandemic due to a widespread chip shortage. But in time, production is apt to ramp up. If you're able to wait on a vehicle purchase, you might end up with a lower base price. That means you won't have to dip into your savings quite as heavily for a down payment, and your ongoing car payments might be lower, too.
Financing costs could drop as well
The Federal Reserve has raised interest rates 11 times since March 2022 in an effort to slow the pace of inflation. But that's resulted in higher borrowing costs for consumers on a host of products, from home equity loans to personal loans.
Because it's gotten expensive to sign an auto loan, waiting on a car purchase makes sense. If the Fed cuts rates next year, the cost of borrowing should drop across the board, making it less expensive to sign a car loan.
Unfortunately, right now, even borrowers with great credit are looking at expensive auto loan rates. But if your credit score is poor, you might get stuck with an exceptionally high borrowing rate. So that's another good reason to put off a car purchase. If you wait, say, a year to purchase a new vehicle, all the while taking steps to boost your credit score, you might end up with a far more affordable car payment after all's said and done.
And if you're not sure how to raise your credit score, know this: Your payment history carries more weight than any other factor when calculating your credit score. If you're able to pay all bills and debts on time over the next 12 months or so, it could help your score a lot.
It's also a good idea to check your credit report for errors. Correcting a mistake that reflects poorly on you could result in a nice credit score boost.
It's easy to see why 24% of consumers have delayed a car purchase this year. If your car no longer runs reliably and is unsafe to drive, then you may not want to put off buying a new one, even if it means paying more and getting stuck with higher financing rates. But if you're in a position where you can afford to wait, then doing so could be a wise financial move.
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