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Ready to update your ride? Here's what you need to know.

If you’re in the market for a new set of wheels, get ready to experience sticker shock. Prices on new and used cars have soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon.

That means that the interest rate you pay on your auto loan matters a lot! Getting a low interest rate in addition to finding a good deal can really help lower your monthly payment.

Here’s what you need to know about the current auto loan market and how to navigate it successfully.

Why are auto prices so high?

The coronavirus pandemic has touched every sector of the economy, and the auto industry is no exception. The drive behind the increase is multifaceted and linked to several interconnected events. When the pandemic hit American shores, demand for new and used cars increased significantly. This was largely due to the people avoiding public transportation for health reasons. An exodus from big cities also boosted the demand for cars.

At the same time, supply of new and used cars declined, as the pandemic put a major slowdown on the manufacturing of cars and critical computer chips for those cars.

The rise in demand and shortage of supply naturally triggered a steep increase in the prices of both new and used vehicles.

Tips for buying a car in today’s market

If you have decided to go ahead with buying a car, it’s best to get pre-approved for an auto loan before you go anywhere near the dealership.

The most recent data shows that auto loans at credit unions are a full two points lower, on average, than auto loans taken out through banks or through the dealership's financial partner. Car prices may be soaring, but credit unions continue to deliver lower rates and customer service you can really bank on. For example, if you take out a $20,000 car loan at 4 percent, your monthly payments will be $368 per month, totaling $22,100 over 60 months (5 years). If you get the same loan at just 2 percent interest, your monthly payments drop to $351and you save more than $1,000 in interest alone over the life of the loan.

The reason: Getting pre-approved gives you a budget to stay within and improves your negotiating power at the dealership. If you're buying a used car, dealerships may want you to upgrade to a newer model, or they may pressure you to get a brand new car with all the bells and whistles. But when you have an upper limit on your budget, it's easier to say no to high-pressure tactics!

In addition, by getting pre-approved, you will be sure that you already have the best interest rate you can qualify for. That means you're armed with information and you can decide whether the dealer is offering you a good deal.

Having information about what you can afford will help you do your research before going to a dealership. Car reviews are readily available online, and you can really narrow down the list of which vehicle you want before walking into a dealership. We've even heard of some of our members emailing a dealership with a detailed list of what they're looking for along with their loan pre-approval information to effectively limit the frustration of negotiating and avoid high-pressure sales tactics!

The used-car market has been hit even harder by the pandemic since prohibitive prices and a short supply has pushed more consumers to shop for used cars instead of new vehicles. This increase in demand, coupled with the dwindling supply, has driven the prices of used cars up to an average of $23,000, according to Edmunds.com.

When you start looking for a new ride this summer or fall, remember to make your first stop, online or in person, at CommonWealth One!

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