Car Loans - Is it A Good Time To Buy?
One would have to be from another planet not to realise that the auto industry is in dire straights. The relative boom years of the early decade have passed and although the number of people eligible to drive is increasing as the population grows, sales of new cars have taken a tumble. The recession hit so fast that many manufacturers were unable to slow production quickly enough to prevent significant inventories from building.
The recession also coincided with the end of a strong period of demand for oil which pushed fuel prices to record highs. Therefore, high 'gas guzzling' cars became less attractive as a purchase prospect – further adding to the woes of the industry.
On the brighter side, used car sales have, up until recently, been relatively buoyant and budgets and expectations have been trimmed to meet the reduced financial means of the consumer.
The final nail, since all these factors are interlinked, has been to drying up of the credit market due to the banks' significant losses experienced in the property markets. As their capital has been wiped out by covering losses and the lack of confidence in lending between them has made getting credit for the person in the street difficult to obtain.
The initial brunt of the recession is over and we are now in a consolidation phase. Things may get worse – or they could get better. No one knows but at least there is a better appreciation of the challenges now and some actions are starting to be put in place to get the economy moving again.
One of the biggest employers – and a key exporter for the UK – is the motor industry. Whilst we cannot do anything to improve the overseas markets, many manufacturers are now putting in place attractive financing offers with which to help sell their cars. Most will avoid discounting the list price by too much since once taken off, a new price point is established making it harder to regain the original price position when things get better. Rather they would prefer to supply added value services such as low cost financing, servicing, additional specifications or even fuel for a year rather than discount the price.
That means that there are some great deals available on new car purchase plans. Many manufacturers are offering interest free credit terms – but subject to a 30% or greater deposit on the price. And don't expect to get a bigger discount in lieu of not taking the finance offer – the subsidy pot is not at the discretion of the dealer so he can't move money from a pot he doesn't control.
Banks and other lenders are still looking to lend money – it is their business so they have to! However, they will look for those customers with good credit histories as they seek to maintain or improve the quality of their portfolio. Remember, they don't need any further losses so they will be trying to attract and cherry pick the better customer prospects.
But whether for a new or used car, deals at around 7% to 8% APR (at time of writing) are available so it may pay to look at borrowing the money from a bank or other lender rather than taking the manufacturers' deals. This also has the advantage of making you a cash buyer with the dealer. It will also help if you do not have a car to trade in since the dealer is looking to liquidate stock and generate cash rather than move into older car stock. Don't expect an aggressive trade in value if you have to part exchange your car.
The biggest discounts will be on the larger executive or luxury cars. Small, fuel efficient town and family cars do not have large margins to play with and remain in relative demand as drivers downsize. Plenty of research will soon identify the best deals – and if you are not too fussy on spec or colour, you could snap up a bargain.
Interest rates are at record lows. That means that there has never been a better time to borrow money on fixed terms. You may even find that paying off your old loan at a a historic higher rate can generate some additional buying capability in today's market. Geared to strong discounts and incentives for dealers and manufacturers to liquidate stock, there has never been a better time to buy a car – be it new or used! The challenge is finding those customers with the ability and desire to commit to buying in these uncertain times. If you are relatively secure financially, then getting that dream car could be a closer reality now than ever before.