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Rising interest rates are driving up U.S. auto loan rates for new and used cars
According to the data of Automobile.com, the average annual growth rate of new cars in the second quarter reached 7.1%. Edmondswhile used cars rose 11%.
So shoppers who opt for a used car end up paying more for the car in the long run.
“If you finance a used car at 11 per cent for six or seven years, after a few years the car is worthless, so People are just spending money.” “[It’s]the big problem right now.”
The average APR a person earns is tied to their credit score, said Tom McParland, a staff writer for the automotive website Jalopnik. “If you have good credit, you can get lower rates,” he said. “If you have bad credit, you get a higher interest rate.”
Currently, Alabama, Georgia, Louisiana, Mississippi, Nevada, New Mexico, Ohio, South Carolina and West Virginia have the highest used car rates.
McParland, who runs Automatch Consulting, a vehicle-buying service, said those states also happen to be states with higher numbers of economically struggling populations. In fact, all but Ohio and New Mexico rank in the bottom 10. Recent list of states with the best and worst average credit scores From WalletHub.
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“Those with poor credit scores are more likely to be scammed,” he said.
The longevity risk associated with used cars is another factor driving up interest rates for car buyers, Yin said.
He added that people who are forced to buy older cars than expected are likely to experience more problems in the next five to seven years.
“Even if you buy the most reliable vehicle in the world, once you hit 100,000 miles, you’re going to pay … for preventive maintenance,” Yin said. “Stuff breaks or wears out.”
Auto repair costs are also rising, making repairs more difficult for drivers of used cars. A typical car repair can cost a consumer $500 to $600, sometimes “much more.” according to to AAA.
“I think many car buyers who were forced into a disadvantaged position will find themselves in a worse position within a few years,” Yin said.
Make sure to pay off your used car loan as soon as possible, suggests Yin. By shortening the loan term, homeowners can save on interest.
Also, don’t skimp on preventive maintenance on your car; make sure you get the recommended routine checks on your vehicle and don’t skip an oil change.
“I can guarantee that it’s always cheaper to fix it before it breaks,” Yin said.
Finally, if a mechanic notices something, get their opinion; if you’re wary of their advice, you can do an inside look by getting a second opinion from another shop.
“You buy the car and trust that it’s going to be with you … at least for the life of your loan repayments, so you want to keep it on the road for as long as possible,” Yin said. The best approach is to maintain proactively, not reactively.”