Find out you’re spending too much money on a car and how to get a car loan if you need one
13 April 2022|5 minute read
Buying a new car is an exciting step, but it can be a very expensive one. With car prices higher than ever before, you may have to put your dream car on hold for a while or consider different financing options.
In this article, we’ll explain why car prices have increased for both new and used vehicles. We’ll also discuss how to know when you’re spending too much money on a car and how to get a car loan if you need one.
In today’s market, car prices for new vehicles have seen increases of between 3% and 85% since 2019. Of course, these increases are dependent on the manufacturer, model, as well as how desirable or in-demand the car is.
And it’s not just new car prices on the rise – the cost of used vehicles has increased by about 33%.
These dramatic increases come largely as a result of a mismatch in supply and demand. The production of new vehicles was disrupted by the pandemic, meaning that fewer new vehicles have been able to hit the market.
This is mostly due to delays in the global supply chain and a shortage in car parts and semiconductors. Manufacturers of these specific components are located in various countries and have experienced issues with the shipping and sourcing of specific materials. In China, there have even been power outages affecting key industrial centres.
Despite the impacts of the pandemic, demand for new cars has remained steady and outweighs the supply, meaning there aren’t enough new cars to go around.
Because the supply of cars is so low compared to demand and pre-pandemic levels of vehicle stock, dealers haven’t had to negotiate as much as they might have previously. Subsequently, they have lifted the manufacturer recommended sales price (MSRP) for many vehicles.
This has been particularly common for sought-after brands where buyers are now competing with one another to secure a vehicle.
Like most goods, the price of a car is ultimately determined by what a buyer and seller are willing to accept to complete the sale. At the moment, if a buyer wants a new car, they likely have to be willing to spend a little more.
We’ve mentioned that used cars have also seen price increases. This is a natural result of the low supply of new cars.
It’s now commonplace to wait months for a new car to arrive in the country, so many people have turned to buying pre-owned vehicles instead.
This increased demand has driven prices up, where even older vehicles with high mileages can sell for much more than they would have prior to the COVID-19 pandemic.
For many Australians, owning a car is a necessity, so many have been willing to spend more on a used car that’s readily available – rather than having to wait months for a new vehicle.
New research from Allianz Australia shows that 52% of Australians are now considering purchasing a used car, a number higher than ever before.
The unfortunate reality is that in this current car market, you’re likely to spend more on a car than you would have just a couple of years ago. And if you’re not willing to pay up, you might have to consider a more affordable model or look at secondhand options.
How much you’re willing to pay for a new car will be influenced by financial and lifestyle factors such as:
According to Canstar Blue’s latest survey of new car owners, Aussies spend an average of $40,729 on a new car. The average amount spent on small cars is about $26,150, while $44,557 on average is being spent on new sedans and $43,545 on new SUVs.
Many variables can affect how much you’ll pay for a used car. Not all models have experienced the same kind of price hikes.
For example, if you’re in the market for a 2011 Ford Ranger, you can expect to pay around $24,000. This is a 40% increase from the $18,000 you would have likely spent on the car in June 2020.
On the other hand, some smaller car models have seen more modest price increases. These price increases can still affect affordability, but may be more manageable.
Interestingly, these price increases buck the usual trend of cars significantly depreciating in value almost immediately after purchase.
While car prices are on the incline, there are some ways to save.
To save on a used vehicle, it may be worthwhile to consider looking outside your city. Used vehicles tend to be a little more affordable outside of the major cities, so you could get a good deal if you’re willing to travel to a regional area.
To spend less on a new vehicle, consider looking at options from less sought-after manufacturers. MG, for example, has the supply and is more affordable than many other brands.
However, it’s likely that car prices will start to slowly wind back over the next couple of years. Prices may increase marginally in the short term, but will revert back to ‘standard’ prices once the manufacturing industry is able to normalise.
Car buying can be stressful. After all, it’s a personal and emotional choice, so try to keep the FOMO under control and remember that you can choose to walk away if you feel like you are paying too much.
Aware of the rising car-buying costs, lenders have increased the amount they will lend.
As always, this depends on your personal circumstances, what you can afford in repayments, and if you’re using a deposit or not.
The good news is that there are many options to suit different preferences and circumstances. Car loan options include:
Most car buyers will be eligible for some kind of car financing solution. It all comes down to your personal situation and how much you can afford, but there are many options available.
You may also be pleasantly surprised at what affordable interest rates are out there.
The good news is if you take out a loan for a used car through Aussie, we will arrange the vehicle inspection and check the PPSR (Personal Property Securities Register) on your behalf.
Before you sign any documents relating to a loan or car purchase, make sure you are fully comfortable with the purchase and will be able to afford the monthly repayments.
If you’d like to learn more about your car financing options, get in touch with Aussie today.