Why now isn’t a bad time to take out a car loan
The pandemic knocked borrowers on their backs in the spring of 2020, but as the economy regained its footing, so, too, has the willingness of consumers to borrow. Consumer applications for auto loans, new mortgages and revolving credit cards all mostly returned to pre-pandemic levels by May 2021, according to a new report by the Consumer Financial Protection Bureau.
Skyrocketing unemployment a year ago crushed demand for credit. Who wanted to take on a big car payment when they were unsure whether they could make the old car payment? Or if they weren’t driving to work but instead setting up shop at home?
Auto loan inquiries, for example, plunged 52% by the end of March 2020.
Jonathan Smoke, chief economist for Cox Automotive, said credit conditions have been favorable all spring and summer, supporting strong demand for car and truck sales.
Credit to buy a car is easier to get than it was a year ago, he said, shifting back to where it was before the pandemic started.
“Rates continue to be lower than a year ago,” Smoke said. “Spreads had widened last year during the pandemic, especially for lower credit tiers.”
What’s a good deal on a car loan, mortgage, credit card?
“The biggest factor in the renewed borrowing interest is the improved, and reopening, economy,” said Greg McBride, chief financial analyst for Bankrate.com.
The fearful economic
“what ifs” of 2020 are giving way to a greater confidence in a stronger economy, he said.
When it comes to a five-year new car loan, the average rate is 4.15% now, down from 4.24% last year. McBride noted the best rates are in the low 2% range, but occasionally you’ll see credit union offer deals of 1.99%.
Average rates on a fouryear used car loan are around 4.71% — down from 4.99% a year ago. Again, he said, the best rates can be in the 2% range for borrowers with strong credit.