Americans are holding onto their cars longer. The average American replaces their car every 11.6 years, and households with an annual income of less than $25,000 buy a new car every 13 years. A car is one of those purchases that most consumers spend money on - and a huge chunk of it as well. In 2019, the average price of a new car increased to $36,718 - a two percent increase from 2018. Then there is the $773 monthly price tag consumers have to pay for car maintenance, financing and general upkeep. With more than half of Americans having less than $1,000 of savings currently, financing a replacement car is not always as straightforward. Yet, if you do find it is time to replace your car, there are alternative financing options out there. It's just about finding the one that suits you and your budget.
Opt For A Dealership Or Auto Financing
A more traditional way of financing your new car purchase is to apply for a car loan or financing at your auto dealer. However, if you currently have an outstanding loan on your current car, this may be difficult. Dealers will check your credit score and payment history. If you choose the same financing company, you may be able to either pay off your outstanding amount on your old car (including average auto loan interest rates of 5.27 percent) or transfer it to the cost of your new car. However, you should be mindful of the impact on your credit utilization rates and score.
Take A Look At A Second Hand Auto Dealer Or Website
According to research by AA Cars, 74 percent of consumers said their most recent vehicle purchase was a used car. This means that car buyers are three times more likely to buy used than new - and with good reason. While the cost of a new car is rapidly rising to $40,000, estimates from Kelley Blue Brook put the average cost of a used car at $20,000. Second-hand websites or dealers are also great for those looking to replace their cars because you can sell your current car on the used car market and put the money towards another second-hand vehicle, completing both transactions in one place.
Another bonus of buying a second-hand car? No sales tax as you would pay with a new car bought from a dealer. You will also pay less for insurance costs since the value will be lower. Finally, depreciation slows with a used car. If you are worried about car performance or reliability, expert and driver ratings and reviews online can help guide you. New cars lose up to 30 percent of their value in the first year. Therefore if you plan on reselling your car in the next few years, a used car may give you more of your investment back. There are now many used car websites and auto dealers that offer financing too, making it easier to fit a smaller budget.
Mix And Match Your Financing
If you have some money saved up but not quite enough to purchase the car you want, you can also combine your financing methods using credit cards, a car/personal loan, proceeds from your old car or all of the above. If you do choose this route, try to put at least 20 percent down before financing the rest. You also want to nail down your financing rates before heading to the dealership.
When it comes to financing, you want to secure the option with the lowest APR possible, which you can do by using loan and credit card comparison websites. Auto loans can average 5.27 percent APR, while the interest rate for personal loans can range between six and 36 percent. Meanwhile, credit card interest rates jumped to 21 percent in January. Both of these would be dependent on your credit history, existing debt and annual income. Inputting these figures into a loan calculator can give you a glimpse of your options.
Whichever route you choose, make sure you take the time to assess how your financing options align with your household budget. In other words, be clear on which option you can afford. Replacing your car is a significant financial decision and should be treated that way. The good news is, with a bit of research and careful consideration of your choices, you are sure to find one that fits.
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