2014 saw many consumers take advantage of historically low interest rates on loans and incentives to buy a record number of cars. And 2015 seems to be continuing the trend. But will the low rates hold? And if you’re on the fence, is 2015 a good year to buy?
Low Cost, High Sales
Interest is best described as the price you pay to buy your auto loan. The higher the interest rate, of course, the higher your monthly payment, and equally important, the higher the overall cost of your car. As you might guess, the higher interest rates are, the fewer cars dealerships are able to move out the door.
Interest rates can still vary widely depending on everything from your total down payment to the lenders you work with, which is why you should collect as many quotes as possible when financing a car. However, the root of it is the “prime” interest rate, set by the Federal Reserve and dictating what banks must charge in interest to other financial institutions. That has stayed very low over the last few years, and as a result, interest rates on car financing have dropped to reflect it.
That said, it’s reasonable for consumers to be concerned that the good times can’t last forever. After the economic troubles in the late 2000s, interest rates sat at an average of 6.7%, and that was for people with pristine credit. And while the rates have steadily declined since, economics works in a cycle. So, with that in mind, should you buy a new car now … or roll the dice and wait?
A Stable Trend
So far, it appears that the trend will hold through 2015. While many analysts believe that the Federal Reserve will increase the prime rate at some point, it’s unlikely to be a large increase and it’s equally unlikely to have a strong effect on auto financing; interest rates may rise less than a quarter of a point.
That said, it’s believed rates will steadily inch up over time, as the Federal Reserve seeks to limit inflation and keep the economy stable. So while you have time, you don’t have forever. So, ask yourself these questions:
Are you still paying off your car? If yes, don’t go into more debt; whatever you might save on interest will be offset by having to borrow to pay the balance of your loan.
Can you afford a new car? Sit down with your budget and work out what a reasonable monthly payment would be for a new car. If you’re going to be squeezed, even at low rates, it might make more sense to save up a down payment.
Will you need a new car in the next few years? If you’ve just bought a car, or if your current car is holding up well, you may not need to buy. If you see yourself buying in the next few years, 2015 will be the time to act.
Low rates may be forecast for the foreseeable future, but they won’t last forever. If you need a new car, this is the time to take the plunge.