this May 19 file photo, a line of unsold 2019
sedans sits at a Hyundai dealership in Littleton,
— Cars are one of the big ticket items in many
household budgets, and prices have been on the rise.
average amount borrowed for a new vehicle in the U.S.
was $32,187 in the first quarter this year, according to
a report from the credit reporting company Experian
published this month.
the average used-vehicle loan also increased, to $20,137.
prices have increased as more advanced safety features
and technology are implemented, and as cars are built to
last longer on the road.
to the increased costs, car owners are stretching out
the time they spend paying for their vehicles.
Gahala, an assistant professor in the department of
business and economics at UW-Milwaukee at Washington
County, said the average car loan is now about six
extended loans have correlated with vehicle prices, but
also a change in consumer preferences, according to
are shifting from buying passenger cars to SUVs,
crossovers and even pickup trucks,” he said, noting
that Chevrolet recently announced plans to discontinue
the production of six cars and Ford plans to stop
producing almost all of its cars.
more expensive models often translate to longer payoff
who take the longer-term loans, there are two drawbacks.
One is more interest because the loan is over a longer
period of time, but also a higher interest rate in the
loan,” Gahala said.
the face of rising prices, how should consumers look to
fit a vehicle purchase into their budget?
Freeman asked for advice from area financial experts.
the ‘upside-down’ loan
creditors want to see debt-to-income ratios of 40
percent or less, according to Kim Rodeman, site manager
for Consumer Credit Counseling Service in Waukesha.
advised shoppers to look carefully at how their credit
score is affecting the vehicle purchase price.
an individual has a poor credit record, they may still
find an affordable monthly payment offered for the
purchase of a vehicle, but they may also find that the
loan interest rate and the purchase price are higher,”
warned against situations in which the car value
depreciates faster than the reduction in the loan
results in a situation known as being ‘upsidedown,”
he said. “The result is the vehicle cannot be sold or
traded in for enough money to pay off the existing loan.
can lead to a situation where a person is still paying
for a car that is not running or is in poor running
very important for consumers to budget and to be careful
about the car loan that they’re signing. If they’re
signing a long-term loan and don’t expect to keep that
car that long, they’re going to put in a difficult
position,” he said.
Rodeman said it is best to use credit as a tool, not a
is OK to use credit for a car, house, education, needed
items, etc., if you have the means to pay back the
financing, the terms of the purchase and financing are
favorable, and you are not using the money for an unwise
reason,” he said.
recommended saving as much for down payments on auto
loans as possible.
never good to buy a car strictly based on the payment
amount,” he said.
buying, Gahala urges looking at the vehicle reliability
ratings and assessing potential maintenance costs, which
can vary significantly.
recommended using sites like Kelley Blue Book to
determine the value of a vehicle and encouraged shopping
rush it if possible,” Gahala said, noting dealerships
vary greatly in pricing and policies. Don’t be afraid
to negotiate. It’s OK to offer a lower price than what
the dealership is asking. Most expect you to.”
response to the rising prices, car leases have become
cited one statistic showing that nearly 1 in 3 consumers
are now leasing rather than purchasing, as the leasing
market moves away from what was previously its mainstay
— higher end cars and trucks.
while leases may appear a cheaper option due to lower
monthly payments, and help a consumer afford a car they
cannot afford to buy outright, Gahala urged caution.
a lease is usually going to be more expensive in the
long run,” he said.
is best to look carefully through the paperwork for
hidden fees, advice that holds true with purchasing as
leasing or purchasing, it’s just important to be
cautious and to look at the statements and look at the
paperwork,” Gahala said.