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Ask a Financial Advisor: Is Now a Good Time to Buy a Car?

One of the most common questions our financial advisory firm has been hearing lately is, "Is now a bad time to buy a car?". It’s a good question. And the answer is a bit complex as there are multiple factors to consider. 

With interest rates rising and the ongoing global supply chain issues, disruptions in the automobile market have people scratching their heads and wondering if they can get a good deal now or if it's best to wait for things to improve. 

If you're asking yourself, "should I buy a new car right now or wait?" this is for you. 

The US Car Market: Ongoing Production and Supply Chain Issues

The US car market is a bit topsy-turvy at the moment. Car production is down by a good percentage compared to 2019. And there's low inventory nationwide due to a lack of computer chips for making new cars. 

It seems like there's no end in sight to the global supply chain issues. First, the COVID-19 pandemic caused a halt in the production of semiconductors in China, leading to the current lower inventory of cars. 

Then the start of the conflict between Russia and Ukraine made things worse, as Russia is one of the major producers of microchips. Not only did many important factories shut down, but disasters and extreme weather conditions have also strained the global supply chain. 

What Does this Mean for Consumers?

As a result, it's difficult for consumers to find the car they want in stock. But in spite of the low inventory, appetite for new cars has continued to rise. There's a backlog of factory orders as many clients are waiting to buy new vehicles. 

With increased consumer demand comes the hike in prices of new and used cars across the board. Dealers with low supply have raised their prices to follow the market demand.

Plus, interest rates are going up. The Federal Reserve approved a new interest increase, bringing the rates to 0.75% - 1%. The potential effect of this increase means consumers who purchase a car may have to bust their budgets.

Regardless of the state of the market, many people still want or need to buy a car. Our advice as financial advisors? If you don't have an immediate need for a car, it may be a good time to wait. 

However, there are advantages and disadvantages to both options, depending on your situation. It's unclear how long it will take for inventory and car prices to return to normal. Or when the global supply chain issues will be over. So, before you make a decision, consider the pros and cons of buying a car now.

Benefits of Buying a Car Now

It may be a good time to buy a car because:

  • There may be more options now than later - If you're set on buying a specific vehicle, now may be the best time to buy it. The supply issues aren’t going away anytime soon, and  there may be fewer options in the coming months. So it's best to take advantage of what’s out there now.
  • It may be affordable to finance it - Negotiations may be tight right now, but some financial incentives like 0% financing are still available for new cars. 
  • You'd have a used car to sell - With high demand from used-car buyers, having a used car to sell can work in your favor. You'll be sure to get several offers.

Cons of Buying a Car Now

In contrast, now may not be a super time because:

  • Prices are at an all-time high - Both new and used car prices have sky-rocketed due to the mismatched demand and supply. As dealers try to make back lost profits caused by low inventory, prices will likely remain high.
  • There is limited availability - Finding the model of the car you want might be challenging due to the limited supply, especially if you're looking for popular vehicles like trucks or SUVs. It may also be difficult to find used cars since consumers may be turning to the used market when they can't find a new vehicle they like or can afford.
  • Dealer incentives are limited - Incentives from dealers like 0% financing offers, cash discounts, and lease specials are common when you buy a new car. But now, even those who typically qualify for these incentives do not get to find it.

So, is it a good time to buy a car? It depends on you. Are you dead set on a certain model, or more concerned with price or timing? Assuming you don’t have an urgent need for the vehicle, the best time to buy a car is when you find a good deal within your means and one you can comfortably afford. 

Keep Your Financial Goal in Mind

Everyone's financial situation is different, so a good time to buy a car varies. But two main factors can help you determine whether to go ahead with that car purchase or wait some more—affordability and your budget. 

If you have decided to purchase a car in the near future and are focused on saving money and maximizing your purchasing power, you should consider a few points.

The first is having a complete understanding of your finances. Find out what you can afford and if you qualify for the best auto loan rates. With prices so high, it pays to keep a close eye on your budget.

Another is doing some research to avoid car buying mistakes. Find out all you can about your desired vehicle, including financing options and manufacturers' rebates. This gives you negotiating power when you go to the dealerships. Also, take some time out to check local car dealerships. Scouting their inventory and discovering how many incentives they offer prospective buyers increases your chances of getting a good deal.

Financing a Car in Retirement

The idea of getting a new car may seem exciting, and it may indeed be necessary. But you need to measure the impact on your long-term happiness and goals. You can face some unexpected expenses if you don't navigate carefully. Get your ducks in a row by:

  • Incorporating a new vehicle purchase into your annual financial plan
  • Making sure the amount you've budgeted won't have a negative impact on the social activities you've planned for retirement and the costs associated with them
  • Deciding if it makes sense to buy a vehicle with a loan. Don't forget that if you borrow to finance the purchase, you'll pay interest on it, and there's a recent hike in interest on cars.

At Wealth Legacy Institute, every financial plan is designed to help you make the best decisions tailored to fit your lifestyle and retirement goals. 

Need more tips on how to plan your finances for retirement? Download your free Essential Retirement Planning Guide

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Disclosure: For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third-party data which may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Indices are unmanaged baskets of securities and are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Information from sources deemed reliable, but its accuracy cannot be guaranteed. Performance is historical and does not guarantee future results. Total return includes reinvestment of dividends and capital gains. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements, or representations whatsoever by us regarding third-party websites. Wealth Legacy Institute is not responsible for the content, availability, or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products, or services available on or through these third-party websites. The opinions expressed by featured authors are their own and may not accurately reflect those of Wealth Legacy Institute®.

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