Many individuals and families trying to take out car loans have noticed that the monthly payments for those loans are rising in the second half of 2022. This seems true for gas-powered cars, hybrid vehicles, and electric ones as well.
Anyone looking to get a loan to buy a car probably has questions in light of these monthly payment increases. For instance, you might wonder whether you’re better off waiting a while for the rates to become more favorable. Can you pay off a car loan early? This is what other consumers want to know.
The following article will discuss the best strategies to cope with rising car loan payments.
How Do Car Loans Work?
If you want a loan to pay for a new, used, or certified pre-owned vehicle, you usually get one by approaching a bank or credit union and applying for the loan by filling out the necessary paperwork. Some lending entities allow you to do so online rather than in person.
You’ll show proof of income and whatever else the lending entity requires. If you accept the loan terms, they’ll give you a lump sum of money to buy the vehicle. You’ll then pay back that amount over an agreed-upon period, along with interest. That interest is how the lending entity makes money on the deal.
You can also avoid borrowing money from a lending entity if you have enough for a down payment on the vehicle without one. Some car sellers will even let you drive off the lot with no money down. If you don’t pay anything down at the time of purchase, though, you can expect to pay more every month until you’ve fully paid off the vehicle.
Monthly Loan Payment Amounts Are Rising
As we progress into the 21st century, hybrid and electric cars are becoming more desirable than gas-powered ones. That makes sense since they’re better for the planet, and you don’t have to spend as much on gas when you drive one.
However, hybrid and electric vehicle owners are now paying more each month for the car loans they took out. Many of them are paying $1,000 or more per month. Meanwhile, the average price of a brand-new car in 2022’s third quarter was $45,971, according to J.D. Power and LMC Automotive.
What Are Some Possible Solutions?
You might ponder how to combat higher car loan payments this year. If you haven’t bought a new vehicle yet, you can consider waiting a few weeks till dealerships have their end-of-the-year holiday sales. At that time, the price for this year’s models should drop somewhat.
You can avoid buying a car for now in the hopes that these high loan payment rates will drop. That might be a viable option if you can take public transportation or rideshares to get to your job or anywhere else you need to go.
Maybe you already bought a car, and you’re dealing with high monthly loan payments. If so, you can consider paying back the loan quicker by scraping the money together or borrowing the bulk from a friend or relative. If you pay back the remainder of the loan early, though, you might have to come up with an early payment penalty as well. Check the loan’s fine print to see if that’s applicable.
Choose the Best Available Option
Each consumer must decide what to do in the face of rising car loan payments. You can wait for end-of-the-year sales to see if you can get a better deal on the vehicle you want. You might hold off on buying a car if you can use public transportation or rideshares instead.
Paying off the remainder of your car’s loan is only an option if you can come up with that money. Before you do, check to see whether your loan comes with an early payment penalty.
Be aware of rising car loan payments, and figure out the strategy to combat them that makes the most sense for you.
More From A Dime Saved: