The 21st century has brought tremendous improvements in the fuel efficiency of gasoline-powered cars, but fuel prices are still leaving a collective knot in the stomachs of already financially-stressed Americans. The “haves” have no problem forking over the cash for new, higher MPG or hybrid gasoline-electric cars. But those who have not-as-much (and the irony here is not lost) may be trapped in less fuel-efficient, older cars for the very reason they need to save: they just don’t have the cash flow for a new car.
New car purchases stalled when the economic solvency of mainstream America went on the skids (starting around late 2008). It wasn’t until late last year that buyers began to emerge from their – on average – decade-old cars, thus delivering a glimmer of hope to auto makers, car dealerships and the U.S. economy in general. By finally shedding their old jalopies, the penny pinchers are treating themselves to intoxicating new-car smells and better gas mileage.
American consumerism may be back on track, but having not-as-much continue to become more burdensome as gas prices increase. The aforementioned glimmer of financial hope is triggering “what ifs” in a lot of minds, maybe even yours… What if I could get spend less on gas? What if my old car just conks out completely? What if I could just get a new car this year?
Financing a New Car is Cool Again
Taking on a loan for a high-ticket item like a new car is risky for both the borrower and lender. Fortunately, as the economy shows some sparks of life again, lenders want to lend again. Bloomberg reports that auto loan interest rates are at their lowest since 2008, and bad credit loans are up to 23% of the new-car financing market. There is hope, even for those who took a hard hit financially.
But, borrowers don’t need to jump out of the frying pan and into the fire just because loans are more available. Poor borrowing and lending habits are what got Middle America into financial trouble in the first place. Fear of record-high gas prices and dying vehicles has the potential to send you into panic mode, and push you to take any loan you can get but, there are smart ways to borrow, even when cash flow is tight. First stop: a loan payment estimator.
Numbers don’t lie. The loan payment estimator at Jeff D’Ambrosio Auto allows you to estimate payments based on the cost of your dream car, or estimate how much dream car you can buy based on the payments you can afford. Playing with the numbers will show you just how valuable it is to save up cash for a down payment if at all possible. You can sometimes get a loan with no money down, but that does increase your monthly payments and extend the life of your loan – which means you’ll pay more in interest when all is said and done.
Costs of Buying vs. Leasing
If you buy a car with plans to keep it for as long as possible, don’t worry about becoming “upside down” on your investment. The depreciation value on a new car makes it nearly impossible to avoid but, eventually, as you pay down your loan, you’ll be right side up again. Take good care of your car for the entire time you own it and the two of you will have a healthy and cost-effective relationship that lives long after the loan is paid.
Leasing a car may seem like an option only for buyers with a good cash flow when it’s really all about how you budget and how much wear and tear you put on a car. Turning in a lease and getting a new car every few years can be nice for people who don’t travel much and who don’t like to or can’t take care of aging vehicles. Just remember, leasing a vehicle still requires monthly payments, but they may be lower than payments on a loan. Plus, every time you take on a new lease, you’ll have to put down a few thousand dollars. So what you save on payments should go into the bank towards your next lease down payment. Potato/Potahto?