buying a car Archives - The Free Financial Advisor

The $49,000+ New Car Reality — Why Entry-Level Vehicles Cost More

March 14, 2026 by Brandon Marcus Leave a Comment

A brand-new car once symbolized a practical step forward. Today it often feels like a luxury purchase wrapped in monthly payments that stretch farther than a highway in Nevada. The average price of a new vehicle in the United States now hovers above $49,000, according to industry tracking from Kelley Blue Book, and that number carries serious weight. Entry-level cars once provided a comfortable gateway into ownership, yet those so-called starter vehicles now carry price tags that rival older luxury models. Something dramatic shifted inside the auto industry, and the sticker shock tells a much bigger story than simple inflation.

A tangle of technology upgrades, supply chain chaos, shifting consumer tastes, and manufacturing economics reshaped the entire market. Anyone curious about modern car prices needs to look beneath the shiny paint and chrome. The reality behind today’s entry-level vehicles reveals a fascinating collision of economics, innovation, and strategy.

The Disappearing Cheap Car

Affordable cars once filled dealership lots like popcorn in a movie theater. Compact sedans and tiny hatchbacks delivered dependable transportation without draining savings accounts. Over the past decade, automakers quietly erased many of those budget models from their lineups. Vehicles like the Ford Fiesta, Chevrolet Spark, and Toyota Yaris once carried entry-level price tags that hovered well under $20,000. Those models now sit in the automotive history books because manufacturers pulled them from production.

Profit margins explain much of that disappearance. Small cars require enormous investment in engineering, safety testing, emissions compliance, and factory tooling. Automakers discovered that larger vehicles such as crossovers and SUVs delivered much higher profits per unit. A manufacturer might earn only a few hundred dollars on a compact car but several thousand on a mid-size SUV. That math changes corporate priorities quickly. Companies now devote massive development budgets toward larger vehicles because those models generate stronger returns.

Consumer demand also shifted dramatically. Drivers embraced crossovers with enthusiasm because those vehicles combine SUV styling, higher seating positions, and family-friendly cargo space. Sales numbers reflected that trend with brutal clarity. Compact sedans once ruled American roads, yet crossovers now dominate new vehicle sales charts. Automakers responded to those signals with ruthless efficiency. Production lines pivoted toward profitable crossovers, leaving entry-level cars behind like forgotten luggage at the airport.

Technology Turned Every Car Into a Rolling Computer

Step inside even the most basic modern vehicle and a small technology festival appears immediately. Digital dashboards glow across instrument panels, touchscreen displays manage navigation and music, and driver-assistance systems monitor the road with radar and cameras. These features improve safety and convenience, yet they also raise manufacturing costs significantly. Advanced technology no longer lives exclusively inside luxury vehicles.

Safety regulations play a huge role in this transformation. Automakers must equip modern vehicles with sophisticated crash structures, multiple airbags, stability control systems, and complex electronic monitoring tools. Many vehicles also include automatic emergency braking, lane-keeping assistance, and adaptive cruise control. Each of those systems requires sensors, processors, software development, and extensive testing. Those components add real cost long before a car ever reaches a dealership lot.

Technology expectations from buyers also push manufacturers toward feature-packed vehicles. Many shoppers now expect smartphone integration, wireless charging, large infotainment screens, and advanced driver assistance even in entry-level models. Automakers rarely strip those features away because technology helps attract buyers in an intensely competitive market. The result resembles a technology arms race where each new model arrives with more digital muscle than the last. All that electronic sophistication raises the baseline cost of building a car.

Supply Chains, Chips, and the Price Ripple Effect

The global supply chain crisis delivered one of the biggest punches to vehicle pricing in recent memory. When the COVID-19 pandemic disrupted factories and transportation networks across the world, automakers suddenly struggled to secure critical components. Semiconductor chips created one of the most painful bottlenecks because modern vehicles rely on dozens of those tiny processors. A typical new car may use anywhere from 50 to over 100 chips depending on its technology features.

Limited chip supplies forced manufacturers to slow production dramatically. Fewer cars rolled off assembly lines, which shrank dealership inventory across the country. Simple economics stepped in at that moment. Lower supply combined with strong demand pushed prices upward quickly. Buyers who once negotiated thousands of dollars off a sticker price suddenly faced markups instead.

Even after supply chains stabilized, higher costs lingered across the industry. Raw materials such as aluminum, steel, and lithium rose sharply in price during the past several years. Automakers absorbed some of those increases, yet many of those expenses eventually appeared in vehicle pricing. Shipping costs, labor wages, and factory upgrades also added pressure. Every stage of production now carries heavier price tags than it did just a decade ago.

Bigger Vehicles, Bigger Price Tags

Walk through any dealership lot and one trend leaps out immediately: vehicles look enormous compared with models from the early 2000s. Crossovers and SUVs dominate the landscape, and those larger vehicles naturally cost more to produce. They require bigger engines, stronger frames, larger tires, and heavier-duty suspensions. Every additional pound of steel, aluminum, or composite material adds to the final price.

Marketing strategies also encourage buyers to move up the price ladder. Automakers design trim levels that stack features in tempting layers. A base model might appear affordable at first glance, yet a slightly upgraded trim offers larger screens, premium audio, heated seats, and advanced safety features. That upgrade often adds several thousand dollars to the price. Buyers frequently stretch their budgets to capture those extra comforts.

Financing plays a powerful role in this upward shift. Longer auto loans allow buyers to spread payments across six or even seven years. Those extended loan terms make expensive vehicles feel more manageable each month. Dealerships understand this psychology extremely well. When monthly payments drive purchasing decisions, vehicle prices climb steadily upward without triggering immediate resistance. That pattern helped push average new car prices beyond the $49,000 mark.

What Smart Buyers Can Do Right Now

Sticker shock does not eliminate every opportunity in the car market. Smart shoppers can still find value with careful planning and flexible expectations. Certified pre-owned vehicles often deliver one of the best deals available today. These cars typically include manufacturer inspections and warranties, yet they cost significantly less than brand-new models. A vehicle that sits two or three years old may offer nearly identical technology and safety features at a much lower price.

Timing also matters when purchasing a vehicle. Dealerships often offer stronger discounts at the end of a model year when new inventory arrives. Shopping during slower sales periods can improve negotiating leverage as well. Buyers who research vehicle incentives and financing offers gain a strong advantage before stepping onto a dealership lot.

Compact vehicles still exist for those willing to search carefully. Models such as the Toyota Corolla, Honda Civic, and Hyundai Elantra remain among the most affordable new cars on the market. Those vehicles deliver impressive reliability, excellent fuel economy, and lower starting prices than most crossovers. Choosing practicality over size can save thousands of dollars while still providing modern safety technology and comfort.

The Road Ahead for Car Prices

The automotive industry stands in the middle of another major transition. Electric vehicles, battery technology, and software development now dominate corporate investment plans across the globe. Those innovations promise cleaner transportation and exciting performance improvements. They also demand enormous research budgets and factory upgrades.

Automakers must recover those investments somewhere, which means vehicle pricing will remain a hot topic for years ahead. Competition among manufacturers may eventually slow the upward price march, yet few analysts expect a return to the ultra-cheap car era. Market forces, consumer expectations, and technological progress reshaped the industry permanently.

Car buyers now face a new reality where careful planning matters more than ever. Exploring used vehicles, comparing financing options, and choosing practical models can soften the impact of rising prices. The era of the simple bargain car may have faded, but smart decisions still open doors to reliable transportation without crushing budgets.

With the average new vehicle price now exceeding $49,000, what strategies make the most sense when shopping for a car today? Give us any and all insight you might have in our comments section below.

7 Financial Tradeoffs People Make to Stay Comfortable

January 21, 2026 by Brandon Marcus Leave a Comment

Comfort has a price tag, and most of us swipe the card without even blinking. From the thermostat wars to mattress upgrades that feel life-changing, modern comfort is a mix of deliberate choices and quiet compromises. We don’t always talk about these decisions out loud, but they shape budgets, priorities, and even daily moods.

Some tradeoffs feel worth every penny, while others slowly drain cash in the background. Let’s pull back the curtain and look at seven common financial tradeoffs people make to stay comfortable—and why they’re so tempting.

1. Paying More For Housing That Reduces Daily Stress

A shorter commute, a safer neighborhood, or simply more space can dramatically improve day-to-day life. Many people choose higher rent or a bigger mortgage to avoid long drives, noisy surroundings, or cramped layouts. This decision often trades future savings for present calm, especially when time and energy feel more valuable than money. Financially, housing costs tend to be the largest monthly expense, so even small upgrades add up fast. Still, fewer hours commuting can mean better sleep, stronger relationships, and lower burnout. For many households, that emotional return justifies the higher bill.

2. Convenience Spending To Save Time And Mental Energy

Food delivery, ride-hailing, grocery apps, and same-day shipping exist for one reason: effort costs something. Paying extra for convenience can turn chaotic days into manageable ones, especially for people juggling work, family, and health. The tradeoff is that convenience pricing often hides in fees, tips, and inflated product costs. Over time, those small charges can quietly rival a utility bill. Yet the mental relief of offloading errands can be real and measurable. Comfort here comes from preserved energy, not luxury.

3. Subscription Creep For Entertainment And Ease

Streaming platforms, cloud storage, fitness apps, meditation tools, and software subscriptions promise seamless living. Each one seems affordable on its own, which makes signing up feel harmless. The tradeoff appears when monthly charges stack up and become a permanent line item. Financially, subscriptions reduce flexibility because they auto-renew whether you’re using them or not. Comfort shows up as instant access, fewer ads, and smoother routines. The cost is less awareness of where money is actually going.

4. Newer Cars For Reliability And Physical Comfort

A newer vehicle often means better climate control, modern safety features, and fewer surprise repairs. For many people, that reliability is worth higher payments, insurance costs, and depreciation. The tradeoff is that cars lose value over time, and comfort upgrades don’t translate into financial returns.

Still, heated seats, advanced driver assistance, and quieter rides can make daily travel less exhausting. Fewer breakdowns also mean fewer emergency expenses and missed obligations. Comfort here is about predictability as much as luxury.

5. Dining Out Instead Of Cooking From Scratch

Cooking at home is usually cheaper, but it requires time, planning, and cleanup. Many people trade grocery savings for restaurant meals or prepared foods to simplify evenings. Financially, this can double or triple food costs without increasing nutrition.

Comfort enters the equation through stress reduction and reclaimed personal time. After long workdays, choosing convenience can feel like self-preservation. The real cost shows up slowly, one receipt at a time.

6. Higher Energy Bills To Control Temperature And Lighting

Keeping a home perfectly warm in winter and cool in summer costs real money. So does leaving lights on, running air purifiers, or powering multiple devices. The tradeoff is clear: lower utility bills versus physical comfort and health. Extreme temperatures can affect sleep quality, productivity, and even safety. Many households willingly pay more to maintain stable indoor conditions. Comfort here is about feeling at ease in your own space, not just saving kilowatts.

7. Paying For Quality Furniture And Sleep Essentials

Mattresses, office chairs, and supportive pillows aren’t cheap, but they directly affect physical well-being. People often trade upfront costs for long-term comfort, hoping to avoid pain or fatigue. Financially, high-quality items can last longer, but the initial price still stings. The alternative—cheaper furniture—may lead to discomfort or replacement costs later. Sleep quality, posture, and daily energy levels are hard to put a price on. For many, this tradeoff feels like an investment in functioning well.

Comfort Always Comes With Choices

Comfort isn’t careless spending; it’s a reflection of what people value most in their daily lives. Every financial tradeoff tells a story about time, energy, health, and peace of mind. Some choices are intentional, others happen gradually, but all of them shape long-term financial health.

Becoming aware of these patterns can help align spending with what truly matters. Whether comfort feels essential or excessive depends on personal priorities. Jump into the comments below and add your own experiences or observations.

8 Hidden Risks People Overlook When Financing a Car at High APR

December 8, 2025 by Brandon Marcus Leave a Comment

There Are Hidden Risks People Overlook When Financing a Car at High APR — Image Source: Shutterstock.com

Buying a car can feel like a thrilling power move—new wheels, fresh start, big energy. But once that excitement fades and the paperwork settles, many drivers discover a financial plot twist they never saw coming. High-APR financing looks simple on the surface, yet it hides a handful of sneaky dangers that can quietly drain your wallet long after the dealership coffee turns cold.

Most people focus on the monthly payment and ignore the traps tucked into the long-term math. Before signing on the dotted line, let’s break down the risks most drivers don’t even realize they’re stepping into—and why your APR might matter more than your car’s horsepower.

1. Total Cost Skyrockets Faster Than Expected

Financing a car at a high APR might seem manageable at first because the monthly payments look reasonable. What many people forget is that those interest charges compound with ruthless consistency. Over several years, you may pay thousands more than the car is actually worth. By the time the loan ends, some drivers realize they could have bought a nicer vehicle for the same total amount. This creeping cost increase is one of the biggest hidden dangers of high-interest financing.

2. You Become Trapped In Negative Equity

Negative equity happens when you owe more on your car loan than your car is worth. High APRs accelerate this issue because your payments attack the interest before making a dent in the principal. As your car depreciates, the gap between its value and your loan balance grows wider. This trap can become a nightmare if you need to sell or trade the vehicle early. Because of negative equity, many drivers feel stuck in a loan they no longer want or can no longer afford.

3. Refinancing Options Shrink Dramatically

People often assume they can refinance down the road and escape their high APR, but lenders don’t always make that easy. If your loan is already upside-down, many banks simply won’t touch it. Even if refinancing is possible, you may face terms that aren’t much better than what you already have. High APRs can essentially lock you into a long-term struggle with hefty interest payments. The belief that refinancing is a guaranteed safety net is one of the most common—and painful—misconceptions.

4. Repairs Hit Harder Because Savings Disappear

A high-APR loan gnaws away at your financial breathing room, leaving less space in your budget for surprise repairs. Cars don’t wait for perfect timing to break down, and repairs can show up before your paycheck does. When savings are thin because your interest charges eat everything first, even minor issues feel like a crisis. This forces many drivers to turn to credit cards or additional loans, deepening the spiral. Over time, the stress of constant financial juggling becomes just as exhausting as the debt itself.

5. Insurance Requirements Stay Expensive Longer

When you finance a car, your lender usually requires full-coverage insurance. With a high APR, your loan term might be longer, meaning you’re stuck paying higher insurance premiums for years. Drivers who expected to downgrade coverage once the loan balance dropped often find themselves paying more than they planned. This hidden long-term cost adds up and makes the total financial burden heavier than expected. The extended commitment to pricey insurance only intensifies the sting of an already expensive loan.

6. Trade-In Flexibility Practically Disappears

High-APR loans limit your freedom to upgrade or switch cars. When your balance grows slower than your vehicle depreciates, you lose the ability to trade in early without bringing cash to the table. Dealerships may roll your negative equity into the next loan, which traps you in an even higher mountain of debt. This domino effect creates a cycle where every new car becomes more financially draining than the last. Before long, what started as a simple purchase becomes an ongoing chain reaction of costly commitments.

7. Financial Stress Slowly Becomes a Daily Companion

Money stress doesn’t announce itself all at once—it creeps in. High-interest car payments can quietly turn into a monthly source of dread as other expenses pile up around them. When too much income goes toward interest, everyday costs feel heavier and unexpected expenses become overwhelming. This strain can spill into relationships, work performance, and overall well-being. The emotional toll might not appear on a loan agreement, but it’s one of the biggest hidden risks of all.

8. Your Credit Score Can Take a Hit Without Warning

People assume that simply making payments keeps their credit safe, but high APR loans can still cause damage indirectly. When a huge chunk of your budget goes toward an expensive car payment, you’re more likely to fall behind on other bills. Even small slip-ups can lead to missed payments or high credit utilization, which hurts your score. A weakened credit profile then makes future loans—car, mortgage, or otherwise—more expensive. Over time, the high APR that started with just one car can ripple across your entire financial life.

Protect Your Wallet Before the Keys Even Touch Your Hand

Financing a car at a high APR may feel convenient in the moment, but the long-term risks are far bigger than most people realize. From rising total costs to shrinking flexibility and mounting stress, the dangers hide in plain sight until they’re too big to ignore. Understanding these risks helps you make smarter decisions—not just for your next car, but for your overall financial health.

Have you ever dealt with a high-interest auto loan or financial surprises at the dealership? Give us your stories, thoughts, or advice in the comments below.

9 Outdated Pieces of Financial Advice That Are Now Dangerous

December 4, 2025 by Brandon Marcus Leave a Comment

Here Are Outdated Pieces Of Financial Advice That Are Now Dangerous — Image Source: Shutterstock.com

Financial advice is everywhere—family, friends, blogs, and random people at parties who swear they know the “secret” to wealth. The problem? Some of that advice hasn’t just aged poorly—it’s actually risky in today’s economy. What worked in the 1980s or even the early 2000s can now set you up for stress, missed opportunities, or serious money mistakes.

If you’re still clinging to old rules without questioning them, it’s time to hit the brakes. Let’s go through nine pieces of financial guidance that sound innocent but can be downright dangerous in 2025 and beyond.

1. Always Pay Off Your Credit Cards In Full Every Month

This used to be gospel advice, but it’s not as simple as it sounds. While paying off debt is generally smart, obsessively trying to clear every card balance can sometimes backfire. Some credit cards offer rewards, points, or cash-back bonuses that make strategic borrowing worthwhile—if you know what you’re doing. Ignoring these perks in a rigid attempt to pay off every dollar immediately can cost you potential benefits. Today, financial savvy is about balance: pay down high-interest debt first but don’t fear leveraging low-interest opportunities.

2. Rent Is Throwing Money Away

The old adage “renting is wasting money” has lost credibility in many markets. Real estate is no longer a guaranteed wealth-builder; in fact, home ownership comes with hefty maintenance costs, property taxes, and fluctuating markets. People who buy too soon, purely because they’re told to, often end up financially strained. Renting can offer flexibility, liquidity, and the ability to invest elsewhere. Wealth today isn’t about owning property at all costs—it’s about making smart, personalized choices.

3. Buy A Brand-New Car As Soon As You Can Afford It

New car fever is tempting, but it’s a financial trap most people underestimate. Cars depreciate fast—sometimes losing 20% of their value the moment you drive off the lot. Older, certified pre-owned vehicles often offer reliability with far less financial stress. Following the “buy new as soon as possible” mantra can set you back tens of thousands over a lifetime. Smart drivers today think about total cost of ownership, not just monthly payments.

4. Avoid All Debt Like The Plague

Debt used to be villainized, and for good reason when interest rates were sky-high. But today, certain types of debt are strategic tools, not automatic disasters. Student loans, mortgages with low-interest rates, and small business loans can be leveraged to build long-term wealth. Avoiding all debt can sometimes prevent you from making investments that grow faster than inflation. Modern financial thinking focuses on smart debt, not zero debt.

5. Keep All Your Money In Savings Accounts

The advice to hoard cash in a savings account sounds safe but is increasingly dangerous. Inflation eats away at your purchasing power, meaning the money you “save” loses value over time. While having an emergency fund is crucial, parking excess cash in low-yield accounts can stunt your financial growth. Investments, index funds, and diversified portfolios offer opportunities to stay ahead of inflation. Being “safe” financially doesn’t mean freezing your money—it means making it work smarter.

6. Only Buy Things On Sale

Waiting for discounts may have made sense before, but now it can backfire in subtle ways. Obsessing over sales can make you impulsively buy things you don’t need simply because they’re discounted. Meanwhile, inflation and fluctuating supply chains can make stockpiling impractical or even expensive. The real strategy is thoughtful, planned spending rather than chasing deals blindly. Financial health is about intention, not a bargain-hunting frenzy.

7. Ignore Technology When Managing Finances

The old mindset was “don’t trust computers with money.” Today, ignoring financial technology is a huge missed opportunity. Apps, automated savings, and investment platforms can streamline your finances, reduce mistakes, and provide insights that were impossible decades ago. People who cling to pen-and-paper budgeting often spend more time and make more errors. The best advice now? Embrace tools that help you track, analyze, and grow your money efficiently.

8. Investing Is Too Risky For Regular People

Once upon a time, investing was framed as a game for the wealthy or Wall Street insiders. That’s no longer true. With modern platforms, low-fee index funds, and educational resources, almost anyone can invest wisely. The real risk lies in not investing, because inflation and opportunity costs silently erode your wealth. Avoiding all investments out of fear may actually be the riskiest move of all. Smart investing is about strategy, not luck.

9. You Need To Do Everything Yourself Financially

The myth of the self-sufficient money expert has done serious harm. Managing finances is complex, and pretending you can handle every decision without guidance can cost time, energy, and even money. Today, working with advisors, using apps, or learning from credible sources is a sign of strength, not weakness. Delegating smartly allows you to focus on your career, relationships, and personal growth while staying financially secure. Financial independence is achieved through strategic support, not solitary struggle.

Time To Update Your Money Mindset

Outdated financial advice can feel harmless—or even wise—but in today’s fast-moving economy, it can be dangerous. The key takeaway is that context matters: what worked decades ago might leave you behind today. Modern money management requires flexibility, strategy, and awareness of new tools, markets, and investment opportunities.

Are you still following any advice from decades past? Share your stories, insights, or moments when old rules tripped you up in the comments section below.

9 Ways to Manage Car Loan Debt

June 11, 2024 by Teri Monroe Leave a Comment

Managing car loan debt can be a daunting task, but with the right strategies, you can keep your finances under control and reduce stress. Here are nine effective ways to manage your car loan debt and ensure you’re on the path to financial stability.

1. Create a Budget

Creating a budget is the first step towards managing any debt, including car loans. List all your sources of income and categorize your expenses. This will help you see where your money is going and where you can cut back. Prioritize your car loan payments in your budget to ensure they are paid on time each month.

2. Make Extra Payments on Your Car Loan

Making extra payments on your car loan can significantly reduce the amount of interest you pay over the life of the loan. Even small additional amounts each month can add up. Consider applying any windfalls, like tax refunds or bonuses, to your car loan. This strategy can help you pay off your loan faster and save money in the long run.

3. Refinance Your Car Loan

Refinancing your car loan can lower your interest rate and monthly payment, making it easier to manage. Shop around for the best rates and terms before deciding to refinance. Keep in mind that refinancing might extend the term of your loan, so weigh the pros and cons carefully. Always read the fine print to understand any fees or penalties associated with refinancing.

4. Negotiate with Your Lender

If you’re struggling to make your payments, don’t hesitate to negotiate with your lender. Lenders may be willing to offer temporary relief, such as a lower interest rate or a deferred payment plan. Be honest about your financial situation and provide any necessary documentation. Early communication with your lender can prevent your situation from worsening.

5. Trade Down Your Vehicle

If your payments are unmanageable, consider trading down to a less expensive vehicle. Selling your current car and buying a cheaper one can reduce your loan amount and monthly payments. Be sure to account for any negative equity before making this decision. This can be a tough choice, but it may provide immediate financial relief.

6. Use Automatic Payments

Setting up automatic payments can ensure you never miss a due date, helping you avoid late fees and potential credit damage. Most lenders offer a discount for enrolling in automatic payments, which can save you money over time. Automating your payments also simplifies your financial management. Just make sure you always have enough funds in your account to cover the payments.

7. Consider a Side Hustle to Help Pay Off Car Loan Debt

If your current income isn’t enough to cover your car loan payments comfortably, consider taking on a side hustle. Additional income from part-time work or freelance gigs can help you stay on top of your debt. Allocate the extra earnings directly towards your car loan to pay it off faster. This can also provide a buffer for other financial obligations.

8. Consolidate Your Debts

Debt consolidation can be an effective way to manage multiple debts. By consolidating, you combine several debts into one payment with a lower interest rate. This can simplify your finances and potentially reduce your overall debt burden. However, ensure that the terms of the consolidated loan are favorable and will save you money in the long term.

9. Seek Professional Advice for Your Car Loan Debt

If you’re feeling overwhelmed by your debt, seeking professional financial advice can be a wise move. Financial advisors can help you create a personalized plan to manage your debt. They can provide insights into strategies like debt consolidation, refinancing, and budgeting. Professional guidance can give you peace of mind and a clear path forward.

Manage Car Loan Debt Efficiently

Managing car loan debt requires a proactive approach and careful planning. By creating a budget, making extra payments, and considering options like refinancing or professional advice, you can take control of your finances. Remember, the key is to stay informed and take action early to prevent your debt from becoming unmanageable. With these strategies, you can reduce stress and work towards financial stability.

Teri Monroe

Teri Monroe started her career in communications working for local government and nonprofits. Today, she is a freelance finance and lifestyle writer and small business owner. Teri holds a B.A. From Elon University. In her spare time, she loves golfing with her husband, taking her dog Milo on long walks, and playing pickleball with friends.

Here’s The Real Reason Used Car Prices Are Dropping

April 3, 2023 by Tamila McDonald Leave a Comment

Dropping Used Car Prices

Dropping used car prices are increasingly common, which is good news for anyone looking to get a different vehicle in the near future. In January, the average price for a used vehicle was $26,510, a $633 decline from the month prior. While that drop may seem modest, a few of the proceeding months also saw price reductions. Here’s a look at some of the real reasons why used car prices are dropping and whether additional price declines are likely.

Why Used Car Prices Are Dropping

New Car Supply Chain Issues Are Resolving

One of the main reasons that used cars became so expensive during the pandemic was the supply chain issues in the new car market. Fewer new cars were making their way to dealerships. As a result, people with an immediate need for a vehicle often had little choice but to consider used cars.

When more people began shopping for used vehicles, used car inventories also fell. Combine that will rising interest in previously owned vehicles, and prices rose incredibly quickly.

However, the new car supply chain issues are now resolving. While inventory levels may be lower in some areas than they were pre-pandemic, the situation is nowhere near as severe. Since that’s the case, people interested in new vehicles can focus on that part of the market, which may increase used car inventory availability to those who prefer previously owned vehicles in specific areas of the country.

Additionally, new car buyers may have a trade-in as part of the deal. When that occurs, the new car purchase creates an additional vehicle to add to the used market, which also benefits inventory levels.

Shifting Attitudes About Vehicles

The pandemic altered the car-buying landscape. Shelter-in-place orders and rapidly rising amounts of remote positions made vehicles less critical when compared to periods where work commutes were the norm and recreational trips were common. As a result, fewer people were interested in offloading the cars they currently owned and replacing them with newer models, as they weren’t as dependent on their vehicles and weren’t spending as much time in them.

Additionally, some people with paid-off vehicles weren’t necessarily inclined to get a different car during the pandemic. Often, getting a new or used car comes with an auto loan payment, something that isn’t always wise to add to a person’s plate during periods of economic uncertainty. Since these individuals weren’t selling or trading in as regularly, that also hindered used car inventories.

Now that the pandemic isn’t as much of a concern, people’s attitudes about car buying are shifting. Anyone who delayed a purchase with a trade-in due to the pandemic may reevaluate that decision, leading to more used inventory.

Rising Interest Rates

While rising interest rates can cause auto loans to become more expensive, they can also trigger price declines in the used car market. Dealerships understand that higher interest rates make financing a vehicle purchase less appealing. As a result, they have to reevaluate their pricing strategy to make used cars seem reasonably affordable.

Often, this results in dealerships dropping the price of their used cars. When the price is lower, the impact of higher interest rates typically seems less severe to auto loan borrowers. As a result, a smart price drop can stir up more demand, leading to more used car sales.

Are More Used Car Price Reductions Likely?

At this time, used car prices may or may not continue to fall in the coming months. Higher interest rates may incentivize dealerships to keep prices lower, using the reduction to draw in buyers who may otherwise be put off due to the higher financing costs. However, used car wholesale prices are actually on the rise, increasing by 4 percent during a two-week period in February.

Since wholesale prices went up, that can often lead to price increases at the dealership, as dealerships will want to offset as much of the additional spending as possible. But that’s not the only factor.

While used car inventories are increasing in some parts of the country, that rise in inventory levels isn’t necessarily universal. One factor that’s hindering the availability of previously owned cars is that many lessees during the pandemic opted to buy out their contract instead of bringing the leased vehicle back. Often, returned lease vehicles become part of a dealership’s used car inventory, so without those cars coming back, inventories are stymied.

Additionally, new fleet vehicle purchases declined during the pandemic. Again, fleet vehicles were previously traded in at dealerships with a reasonable amount of regularity, leading to used cars on lots. Since fleet vehicle activities changed, that also hinders the used car market.

How much of an impact those issues have on local used car availability varies, as the use of leases or the prevalence of fleet vehicle purchases differ across the country. Still, they could keep inventory levels broadly low enough that additional price declines become unlikely.

Is Now a Good Time to Buy a Used Car?

Ultimately, whether now is a good time to purchase a previously owned vehicle is a personal decision. Prices are falling, which is excellent news for those who need to replace an existing vehicle or acquire an additional car for their household either immediately or in the new future.

However, the current prices of used vehicles are by no means low. The pandemic and the situations it caused led to massive price hikes, and recent declines haven’t overcome those increases entirely. As a result, used cars still aren’t as affordable as they once were, so it’s critical to keep that in mind.

Additionally, rising interest rates are a factor. Ultimately, financing costs more today than it did before inflation made interest rate increases a necessity. Since that’s the case, interest rates could offset any value created by price reductions for those who need to finance.

Since that’s the case, aspiring used vehicle buyers need to look at all of the factors. That way, they can determine whether getting a previously owned car now makes sense in the context of their situation.

Do you know of any other reasons why there are dropping used car prices? Are you considering getting a car but want to see if prices will fall further? Share your thoughts in the comments below.

Tamila McDonald

Tamila McDonald is a U.S. Army veteran with 20 years of service, including five years as a military financial advisor. After retiring from the Army, she spent eight years as an AFCPE-certified personal financial advisor for wounded warriors and their families. Now she writes about personal finance and benefits programs for numerous financial websites.

Should You Ever Use A Car Dealer’s In-House Financing?

May 16, 2022 by Tamila McDonald Leave a Comment

car dealer's in-house financing

Dealerships that offer in-house financing – also called “buy-here, pay-here” dealers – may seem like an attractive option. They let you handle your vehicle purchase and financing at a single place, often dealing with just one or two people along the way. But are they actually a good solution? Or is a car dealer’s in-house financing always a bad deal? If you’re asking questions like that, here’s what you need to know.

Pros and Cons of Buy-Here, Pay-Here Car Financing

The Benefits of Car Dealer In-House Financing

In-house financing at a car dealership does come with some benefits. First, it’s incredibly convenient, allowing you to handle all of your purchase needs in one location. Along with squaring away your financing, the dealer can bundle in the rest of the transaction, ensuring the car price, trade-in, and all other factors are part of one straightforward equation.

Second, in-house financing can usually let you handle everything in a single day. There typically aren’t many steps between you and driving away in a new-to-you vehicle. If you need a car fast, that could make this option more attractive.

Finally, you may have an easier time qualifying for in-house financing if you don’t have good credit. Many of these arrangements are designed with those with lower credit scores in mind. Since that’s the case, it may be a more viable approach if you’re in poor credit territory.

The Drawbacks of Car Dealer In-House Financing

While car dealer in-house financing does come with some benefits, there are plenty of drawbacks, too. The biggest one is usually the interest rate, which may be far higher than you would get if you worked with a bank, credit union, or another traditional lender. As a result, you could effectively overpay for the car, which isn’t ideal.

Another drawback is that the loan terms are typically pretty strict. Missing a payment by even just one day may trigger penalty interest rates or repossession, depending on the nature of the lending agreement.

Finally, many car dealerships that offer in-house financing sell strictly older cars, many of which may not be in great repair. There are laws protecting you from serious safety defects, failures to disclose major accidents, major breakdowns beyond a reasonable level, and similar issues. However, there isn’t protection against faster-than-expected wear and tear issues or similar problems that may lead to repair costs. As a result, the car may end up costing you a lot more than you planned right away.

Should You Ever Use a Car Dealer’s In-House Financing?

Generally speaking, the drawbacks of in-house financing outweigh the potential benefits. If you have access to traditional financing, you’ll typically end up paying less in interest by going that route. Plus, the terms may be a bit more flexible, allowing you to avoid costly penalty interest rates or repossessions if you make a minor misstep.

However, if your credit is poor enough that you can’t qualify for anything else, it is a pathway to a vehicle. Just be aware of the contract terms and ensure you make timely payments. Otherwise, you may trigger penalties or repossession.

Additionally, if you’re looking at older used cars, assume that you’ll have some repair bills on the horizon. If possible, have the vehicle inspected by a reputable repair shop before purchasing. That way, you can estimate what you might need to spend in the coming weeks or months. Then, you can use that information to ensure you have enough set aside or can take it to the dealer to potentially negotiate in some repairs or get a lower price.

Do you think it’s ever a good idea to use a car dealer’s in-house financing? Have you used in-house financing and want to tell others about your experience? Share your thoughts in the comments below.

Tamila McDonald

The Disappearing Cheap Car

Technology Turned Every Car Into a Rolling Computer

Supply Chains, Chips, and the Price Ripple Effect

Bigger Vehicles, Bigger Price Tags

What Smart Buyers Can Do Right Now

The Road Ahead for Car Prices

You May Also Like…

1. Paying More For Housing That Reduces Daily Stress

2. Convenience Spending To Save Time And Mental Energy

3. Subscription Creep For Entertainment And Ease

4. Newer Cars For Reliability And Physical Comfort

5. Dining Out Instead Of Cooking From Scratch

6. Higher Energy Bills To Control Temperature And Lighting

7. Paying For Quality Furniture And Sleep Essentials

Comfort Always Comes With Choices

You May Also Like…

1. Total Cost Skyrockets Faster Than Expected

2. You Become Trapped In Negative Equity

3. Refinancing Options Shrink Dramatically

4. Repairs Hit Harder Because Savings Disappear

5. Insurance Requirements Stay Expensive Longer

6. Trade-In Flexibility Practically Disappears

7. Financial Stress Slowly Becomes a Daily Companion

8. Your Credit Score Can Take a Hit Without Warning

Protect Your Wallet Before the Keys Even Touch Your Hand

You May Also Like…

1. Always Pay Off Your Credit Cards In Full Every Month

2. Rent Is Throwing Money Away

3. Buy A Brand-New Car As Soon As You Can Afford It

4. Avoid All Debt Like The Plague

5. Keep All Your Money In Savings Accounts

6. Only Buy Things On Sale

7. Ignore Technology When Managing Finances

8. Investing Is Too Risky For Regular People

9. You Need To Do Everything Yourself Financially

Time To Update Your Money Mindset

You May Also Like…

1. Create a Budget

2. Make Extra Payments on Your Car Loan

3. Refinance Your Car Loan

4. Negotiate with Your Lender

5. Trade Down Your Vehicle

6. Use Automatic Payments

7. Consider a Side Hustle to Help Pay Off Car Loan Debt

8. Consolidate Your Debts

9. Seek Professional Advice for Your Car Loan Debt

Manage Car Loan Debt Efficiently

Why Used Car Prices Are Dropping

New Car Supply Chain Issues Are Resolving

Shifting Attitudes About Vehicles

Rising Interest Rates

Are More Used Car Price Reductions Likely?

Is Now a Good Time to Buy a Used Car?

Pros and Cons of Buy-Here, Pay-Here Car Financing

The Benefits of Car Dealer In-House Financing

The Drawbacks of Car Dealer In-House Financing

Should You Ever Use a Car Dealer’s In-House Financing?