Buying a new or used car is a question that’s not applicable for those who are financially well off. For the vast majority of buyers, it’s a crucial question. It’s important to know that you may find lenders scrutinizing your financials more closely in the future if you’re trying to purchase a vehicle. According to the Federal Reserve, rejection rates in June of 2023 were up to 14.2 percent.
Loan Delinquency Rates Up
The number of people delinquent in their car payments is at the highest rate since the Great Recession of 2007 to 2009. It’s particularly prevalent among buyers under the age of 30, but lenders are eying all buyers with increased doubt. A full 4.6 percent of the population are defaulting on auto loans, but delinquencies are also extending to other types of loans.
Interest Rate Increases
The Federal Reserve has already increased interest rates several times in an effort to control inflation. That means car buyers are paying a higher rate of interest on the loans they are able to obtain. As the number of available financing options decrease, interest rates will further increase.
Higher Monthly Payments
The average payment on a new car is approximately $1,000 per month. Financial experts say your auto payment should only be 10 to 15 percent of your income. With insurance, that amount should be 20 percent. The current amounts far exceed what many people can afford when figuring in rent or mortgage costs, food and utilities.
Lenders Seal Auto Loans
Many lenders have indicated they have already, or are going to, seal lending on vehicles. They view the risk of delinquency as too great. That leaves dealerships with little recourse but to extend credit themselves if they want to sell cars. According to the Fed, the rate of car loan rejections is 30.7 percent.
A certified pre-owned (CPO) vehicle is a good alternative. The overall cost and monthly payments will be less – providing you can obtain a loan. It will have been inspected, repaired, and reconditioned as necessary by the dealer to like-new condition as per manufacturer’s standards. If you’re lucky, there may also be a remaining manufacturer’s warranty still in force.
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of your insurance needs, please contact us at 561-391-4661.
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