It's getting more expensive to buy a car -- even a used one.
Unless you live in a major city with an extensive and reliable public transportation network, you probably need a car to get to work, run errands, and, well, just plain function.
Now you're probably aware that you can save a lot of money by purchasing a used car over a new one. But these days, your savings may be less substantial than expected.
Used car prices are going up
Over the past 12 months, used vehicle prices have jumped almost 10% to mark the biggest increase in over a decade, as per the U.S. consumer price index.
The reason? Limited supply and high demand. Many people stopped using public transportation during the pandemic due to safety concerns and rushed to buy cars instead. In fact, Cox Automotive estimates that demand for used vehicles has doubled since March of 2020.
Also, during the pandemic, a lot of Americans dealt with income loss and experienced some level of financial insecurity. As such, consumers sought out used cars over new ones for the savings involved, and now, there's not a lot of supply to pick through.
How to finance a used car
If you're looking to buy a used car but can't pay for one outright, then you'll need to finance it. And in that regard, you have options.
First, you could take out a personal loan to buy a car. Personal loans let you borrow money for any reason and generally come with competitive interest rates -- though the higher your credit score, the less interest you're likely to pay.
Secondly, you could take out a regular car loan, where the vehicle you're buying is used as collateral for that loan. Personal loans, by contrast, are unsecured -- there's no specific asset used as collateral for them.
So which is the better choice?
Well, a personal loan might come with a shorter repayment period than a traditional auto loan, leaving you with higher monthly payments. If you can swing those payments, that may not be an issue, and you may be able to shed that debt sooner.
But if you're already stretching your budget to buy a used car in the first place, then a traditional auto loan may be a better bet.
Also, you may be eligible to borrow more money with a regular auto loan because, as mentioned, that loan is being secured by a specific asset -- the car you're buying.
Of course, no matter which type of loan you decide to get, it's a good idea to compare rates so you end up with the best deal. And also, if you can work on boosting your credit score before applying, you might put yourself in a position to save some money on interest.
Unfortunately, used cars are more expensive to come by today than they were in the past. If you need a vehicle, be sure to weigh your financing options carefully so that your car fits neatly into your budget and doesn't cause a strain.
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