Car Financing Becoming More Challenging with New Car Prices Constantly on the Rise
Prices of new cars are constantly on the rise and it is increasingly felt that purchasing a new car is no longer a good idea for typical households. The cost of new cars is currently pretty high and quite out of range for many average households. With this development in the auto scenario, people are constantly confronted with tough financing decisions. As per the Kelley Blue Book, currently, the price of any new light truck or a car is almost $34,000 in 2016. Many people are forced to borrow more and that too, for longer periods of time just to finance a new car purchase.
Trend toward Used Cars Globally
No wonder second-hand cars are becoming more popular globally. Price is the key factor here. A second-hand car that is relatively new would be around 15 % cheaper than a brand new car. The frequency of individuals who are changing cars is constantly on the rise thanks to the used car sector and financing solutions. The market for used cars is showing huge potential everywhere across the globe. Browse through reputed sites such as http://idealautousa.com/ for more information about purchasing used cars in great condition.
Auto Leases Becoming More Popular
According to the reports, Experian Automotive declared that during the current year’s first quarter, the proportion of brand new cars purchased using financing went up to over 86% and even the average loans amounted to $30,000, the highest so far. The average loan term for any new car is currently 68 months, almost 5½years while some loans would be stretching for as long as almost seven years. Auto leases are increasingly becoming more popular as they often provide much lower payments opportunities as compared to the higher rates in conventional car loans. During the first quarter of the current year, statistics reveal that leases have actually accounted for over 30 % of all new car transactions.
Why Choose Leasing over Loans?
A car lease would allow a customer to make payments over a fixed period of time. Thereafter, he could typically choose to either buy the car or return it to the dealership. But longer-term car loans are not free from risks. They are known to carry huge risks. The Consumer Financial Protection Bureau has been warning the borrowers that those who are deliberately taking out long-term loans would certainly end up paying much more for the new car overall. Moreover, they would be running a huge risk of getting upside down on their loans. This implies that they would end up owing more than the car’s actual worth.
Guidelines to Determining the Right Car
As per Bankrate, a conventional rule of thumb seems to be the “20/4/10” rule. As per this rule, car purchasers must try to put down a minimum of 20% in cash and take out a car loan that is not any longer than four years. They must ensure that the cost of principal, interest, as well as, insurance is maximum 10 % of total household income. If you are just not following these guidelines, it is clearly evident that the car you are aspiring for is too expensive. According to experts, if you require financing for five to seven years, it implies that you actually cannot afford it and you are simply going overboard.
As per auto finance experts, the interest rate is still not alarmingly high for the new car loans. However, car purchasers should make it a point not to extend loan term to over five years. Experts insist that you check out the insurance prices for a particular car model before you take the final plunge. This is necessary to safeguard you against the shock when you examine the insurance bill post purchasing the car.
Author Bio: Tyrell Jones is an auto consultant who has been attached to a used car dealership in Arizona. He is a car enthusiast and has been in the business for over five years now. He is an expert on vehicle valuation and all the stuff which goes on under the hood and has recently taken to blogging to help prospective customers understand when they should invest in a car, what type of car is best for them and great places to purchase them like http://idealautousa.com.