Auto loan rates are on the rise, but that shouldn’t scare off car shoppers looking for good deals this summer.
Continue Reading Below
With an influx of vehicles coming off leases, bargain hunters can find a used car, truck or SUV that fits their needs but doesn’t break the bank, according to an auto financing executive.
“It’s easy to spend more than your budget calls for,” Joe Pendergast, vice president of consumer lending at Navy Federal Credit Union, told FOX Business. “If you really had to have a certain make and model, look at a used car. It can help with affordability, and you get a lot of the same benefits.”
The volume of leased vehicles in the U.S. climbed to an all-time high in 2016, and leasing accounts for roughly one-third of all new vehicles sold each year. Analysts expect prices to drop as more owners return their vehicles at the end of their leases.
An increase in used-car inventories, largely driven by off-lease vehicles, is expected to push sticker prices lower in the months, auction company Manheim said in its latest report on wholesale prices. The cost of used cars and trucks dropped 1.6% in April, the largest decline since March 2009, according to Labor Department data.
New vehicles certainly offer the latest technology, the best warranties and the lowest interest rates on a loan. Off-lease vehicles, however, are often low-mileage models and no more than a few years old, Pendergast said. These near-new vehicles are also typically certified pre-owned, meaning buyers will get the added benefit of a robust warranty from the manufacturer.
“People see a lot of value in used cars out there,” he said.
Pendergast added that consumers won’t stop buying cars as gas prices, interest rates and costs go up, but they might shy away from buying a new model. To combat higher prices at the pump, buyers can turn to smaller vehicles, electric cars or hybrids, he said. He also said interest rates don’t affect monthly payments as much as prices.
Consumers are becoming more accustomed to taking out loans of six years or more to offset the higher cost of SUVs and trucks, which account for the majority of sales nationwide. The average auto loan in April was 69.2 months for new vehicles and 67.1 months for used vehicles, according to Edmunds data. The car-shopping website also found that auto loan rates topped 5% for the third consecutive month.
The most popular vehicle for Navy Federal Credit Union members is the Ford F-150. Pickup trucks in general are among the most common vehicles financed by Navy Federal.
Pendergast advises all car buyers to stay within a budget and shop around for the best price and loan rate. Shoppers should also check their credit rating and “know where they stand before going to the dealership.”
“Whether you’re buying new or used, don’t take the first deal you see,” he said. “Be able to know that you can afford your car payment, as well as gas and maintenance.”
When considering a used car, it’s important to research the car’s value and its maintenance history, Pendergast said. Many dealerships provide a maintenance report for no extra charge. Navy Federal members get up to 10 free CARFAX reports each month.