How is the chip shortage impacting the car buying market? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Gurpreet Singh, General Manager of Auto Loans at Credit Karma, on Quora:
It is no secret that the global shortage of semiconductor chips has made things even more complicated for people in the market for a car. These chips are vital components in the electronics featured in today’s cars, and are now causing delays for new supplies of vehicles to enter the market.
With supply chain disruptions, the auto industry is still struggling to keep up with supplying enough vehicles to meet demand. We are seeing consumer demand starting to cool a bit, with car prices slightly falling for three consecutive months, but the price of a used car is still more than ~40% higher than it was a year ago. Consumers who are unable to postpone purchasing a car should consider taking these steps in order to secure a car they want, at a decent price, at least for today’s standards.
Trade in your car. If you are a car owner in the market for a new car, definitely consider trading in your vehicle to help offset the steeper price you may wind up paying for your new car purchase. Higher used car prices mean current car owners have likely seen the value of their cars appreciate. In fact, last summer, when we analyzed Credit Karma members who had synced their vehicles with our platform, among 25 million cars, we saw the median retail value increase by ~$1,750, and that was in just a matter of a few months. If you do decide to trade in your vehicle for cash or another car, shop it around and get offers from a few different places.
Broaden your search net. In today’s market, your preferred dealership may not have the car you want so be prepared to look beyond your typical parameters. Also, look into purchasing a car through digital dealerships like Carvana. Not only do services like these typically provide you a guarantee that allows you to return the car you’ve purchased within a number of days if you decide it’s not the right fit, but it also serves as a one-stop-shop for financing and purchasing a car. For instance, Credit Karma’s partnership with Carvana allows us to match our members with an auto loan they are already pre-approved for so they have transparency as to how much car they can afford.
Be wary of dealer financing. If you choose to finance your car through the dealership, you might end up paying a higher interest rate. Yet, avoiding dealer financing in this market is likely easier said than done as there have been reported instances where buyers are being pressured by dealers to arrange financing through them, or they might miss out on purchasing the car altogether. If you find yourself in a similar situation, hear out their options and terms as it might save you enough money on the purchase price to make it worth it. Check to see if there is a penalty for paying off the loan early, and if there’s not, consider financing, and paying it off as soon as the loan allows. If you feel like the dealer you’re interacting with is violating the law, you can file a complaint with the FTC and your state attorney general.
Save for a bigger down payment. If you plan to finance your vehicle with an auto loan, consider saving up for a bigger down payment to offset rising rates. Due to high car prices, you might find yourself considering an auto loan with a longer term, and while that might make your monthly payments more manageable, you’ll end up paying more interest over the life of your loan.
This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.