NEW YORK (sbup) — Ah, to buy a new car! Everything works and the warranty has years to run. There are no dings, and the vehicle has that special smell.
This might be the time to get all that. Loan rates on new cars are at the lowest in years.
Experts often tout the merits of used cars, which can be far cheaper than new cars while still having most of their miles ahead of them, but there'd be no used cars if no one ever bought new. And right now, the average car on the road is more than 11 years old, so millions of drivers will be shopping. Some experts forecast record sales this year, and more than nine in 10 new-car buyers will borrow, according to personal finance website WalletHub.
"Consumers that have delayed purchases are now getting forced into looking for cars as maintenance and repair costs on older cars rise," says Frank L. DuBois, chairman of the Kogod School of Business at American University, in a Wallet Hub report on car loans.
With the economy improving and demand for vehicles growing, prospective buyers are being warned that prices are rising. Kelley Blue Book says the average new car cost 5.2% more in January than a year earlier.
"Lower gas prices are helping with what has already been a growing market for truck and utility vehicles," Alec Gutierrez, senior analyst for Kelley Blue Book, said in a market analysis. "In turn, these vehicles are driving increases in average transaction prices across the industry, especially among the domestic automakers."
Low-rate policies of the Federal Reserve and high demand for quality securities have helped keep down rates for mortgages, vehicles and other types of loans. An improving economy and job market has helped too, reducing the number of auto loan delinquencies to near record lows, according to Equifax, the credit-data service.
"Auto lending is at a record high of more than $975 billion, accounting for nearly one-third of all non-mortgage consumer debt," says Dennis Carlson, deputy chief economist at Equifax, in a market analysis.
So, where to borrow?
WalletHub surveyed 157 lenders to find the best deals, concluding that auto loan rates had reached the lowest levels in several years. The average new-car loan charges 4.29%, down a tad from last spring.
But buyers can do better with careful shopping. The average loan rate offered by carmakers is 2.09%, while credit unions charge 2.41%. Banks charge the most, with regional banks the priciest at 4.5%.
Among the manufacturers, several offer eye-popping deals, with Nissan, Toyota and Chrysler providing zero-percent funding on the best deals for borrowers with excellent credit, WalletHub says. At the other end of the scale is Ford, charging 5.9%.
Your credit rating really matters, WalletHub says: "It will cost you roughly four-and-a-half times more to finance a car if you have fair credit versus excellent credit. This would amount to roughly $5,500 in extra interest paid over the life of a $20,000 five-year loan."
So check your credit history for mistakes and do whatever you can to improve your rating, such as paying off credit card balances. Then hit the showrooms, looking for the best combination of vehicle price and loan terms. And if you really hanker for a new vehicle, don't wait too long; a WalletHub survey of experts found most expect loan rates to rise.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.