It’s not news that the pandemic has hit most industries, and traders have been facing shortages of all kinds for over a year (no doubt the 2020 toilet paper famine will be infamous for decades to come. generations).
Earlier this year, shortages of lumber and household appliances spiked construction prices – and the auto market could be next.
While many types of consumer products have been difficult to sell for most of 2021, the auto market has seen some of its the best months for a long time in April and May of this year. Now, between high sales and manufacturing delays, the stock of new cars is significantly low. And, as we see whenever the economy is struggling, the used car market also looks pretty exhausted. When times get tough, people hang on to cars they might otherwise have traded in or sold for an upgrade.
Overall, new and used car inventories are at record levels. And, as many of us have learned while searching for toilet paper, consumers get a little trigger-happy when they hear about a shortage.
Does knowing that numbers are limited itch for new wheels? Well, you should probably think twice before you go to the dealership.
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It’s a sellers market (of cars)
Any basic economics course will cover the fundamentals of supply and demand. When supply is low and demand is high, prices go up. And up to.
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The seller’s terrible warning to “buy now before they’re gone!” is usually just a sales tactic. At present, however, this is actually the truth. Inventory is limited and dealers are less concerned with finding customers to sell to than with finding inventory to sell them.
What does this mean to you? Car prices are rising like a rocket, and this rocket doesn’t seem to run out of fuel anytime soon.
Loans may be more difficult to obtain
The other side of the equation is funding. With prices higher than ever, you’ll likely need a bigger car loan to get a car. It may not be as easy as you think.
Banks don’t like risk. As the economic impacts of the pandemic have become clear, many banks have gotten to work to limit their risk – and much of the risk limitation is getting stingy with lending. On the credit card side, we’ve seen issuers lower credit limits and increase approval requirements. And they’ve taken similar action with loans.
Therefore, you will probably need a better credit rating to get a car loan than before. Even if you are approved, you may not be offered a loan as large as the one you would have received in 2019.
And if you plan to use a personal loan to buy a car, don’t. Even the best personal loans have higher interest rates than most auto loans, especially if you have poor credit.
Save now and buy later if you can
A lot of people go back to their offices or even just to stores. If you’re leaving home for the first time in a year and looking at your old-fashioned car from before the times, it might be really tempting to celebrate the end of your lockdown with a new ride.
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Well, you are not the only one. But, the early risers beat you against the proverbial worm. The auto inventory shortages are here, and they’ve driven up the prices for the ride. Between inventory problems, high prices and suspicious lenders, this summer could actually be the worst time to buy a car.
Unless your car is running out of steam – or tires, so to speak – you’d probably be better off waiting for inventory to recover before trying to buy a new car (or a new one for you). Your savings account will thank you.
If you absolutely need a new car, be sure to do your research. Know the market price of a vehicle before you even hit the ground so you know exactly how much more you are being asked to pay. And if you’re in the market for a used car, have it checked out by a reputable mechanic when possible. With such a limited inventory, you’re probably not getting the cream of the crop.