- Vehicle prices are high across the board right now.
- If you can hold off on purchasing a car, you may want to go that route.
You may want to rethink your plans.
For some people, owning a car is a luxury. But for others, it's a necessity. If you need a vehicle to get to your job, for example, then it's an expense that's unavoidable.
That said, there's a difference between needing a functional vehicle and needing a nicer one. And if your car currently runs just fine, then you may want to think twice about upgrading, according to financial expert Suze Orman.
It's a bad time to buy a car
On a recent podcast, Orman advised consumers to avoid purchasing a car right now if possible. The reason? Prices are so high, she says, that consumers are apt to pay a lot more for a new vehicle.
Plus, borrowing rates are higher in the wake of the Federal Reserve's interest rate hikes. So all told, consumers who purchase and finance a car are looking at potentially busting their budgets, especially when we also account for the cost of auto insurance.
Just how bad have vehicle prices gotten? In May, the average new vehicle transaction price came to $47,148, according to new data by Kelley Blue Book.
Last month, car prices rose 1%, or $472, compared to the previous month. They were also up 13.5%, or $5,613 on average, compared to May 2021.
In fact, the average price paid for a new car last month was the second-highest on record. The only month when consumers paid a higher average price for a new vehicle was December 2021, when the average new vehicle transaction price reached $47,202.
Of course, higher car prices also mean higher costs of ownership when we factor in the cost of financing a vehicle. Last month, the average monthly U.S. car payment reached $712, according to market research firm Cox Automotive. That represents a record high.
Do your best to wait
If your current vehicle really isn't safe or reliable to drive and you live someplace where having a car is a must, then you may have no choice but to purchase a car at a higher price and get stuck with a higher auto loan payment. But if you have the option to hold off, Orman would strongly advise that you do so.
That said, just because you need to replace your current car doesn't mean you need to pay up for a new model. First, you could always go the certified used car route, which is apt to be a lot less expensive than buying a new car. And if that doesn't work for you -- say, you're not comfortable driving a previously owned vehicle and you want the warranties that tend to come with new vehicle purchases -- then be judicious about the features you pay for in a new car.
You may like the idea of heated seats and a state-of-the-art entertainment system. But if that adds $5,000 to the cost of your car, you may not want to upgrade so much.
These days, driving is a much more expensive prospect thanks to higher gas prices. The last thing you need right now is a budget-busting auto loan payment hanging over your head.
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