It’s been all over the news for months now. The Federal Reserve is raising interest rates to fight inflation. But what does that mean for you? How will it impact your life? Well, if you need to buy a vehicle, rising interest rates could affect you. We’re going to explore some strategies and things to consider when you’re about to purchase that new vehicle.
Understanding the impact of high interest rates.
Before diving into the specifics of buying a car, it’s important to understand how high interest rates can affect your overall financial picture. High interest rates translate to higher monthly payments, but they also lead to extra cost in interest payments over the life of your loan. This can significantly increase the total cost of your vehicle.
Consider getting pre-qualified.
Alright, so now that you know how high interest rates will affect your loan and your personal finances, how can you minimize your cost when shopping for a loan? Well, one solution is to get pre-qualified with Drive®. It only takes about two minutes and there’s no impact to your credit score. Once you’re pre-qualified, you can use the Budget Customizer to find the vehicle you want at the terms you want. What else can you do?
Look into a shorter loan term.
One way to mitigate the impact of high interest rates is to go with a shorter term on your loan. A note of caution here though: choosing a shorter loan term will likely increase your monthly payment. But it can also significantly reduce the amount of interest you pay over the life of your loan. Aim for a loan term that you can comfortably manage in your budget.
Why not buy used?
If you’re flexible in your choice of vehicles, don’t let pre-owned vehicles drop off your radar. Used cars generally come with lower price tags which can help offset some of the cost of a high interest rate. Used vehicles can keep the amount financed lower, which could make the loan more friendly for your budget.
Boost your credit score.
Improving your credit score can make a big difference in the interest rate you qualify for. Since the financial environment right now has higher interest rates all around, boosting your credit score can get you on the lower end of the interest rate spectrum. That can, in turn, reduce the amount of interest you pay across the life of your loan as well.
Increase your down payment amount.
One of the more important things you can do to insulate yourself from higher interest rates is putting more money into your down payment. This can help decrease the amount you’re financing, which will reduce the amount of interest you pay over the life of the loan.
Buying a car when interest rates are high can be a challenge. But if you insulate yourself by being flexible in your vehicle choice, increasing your down payment amount and boosting your credit score, you should be prepared to take on a new loan in this environment of high interest rates.
