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Buying cars getting less affordable. Sign for auto loans now?

[Nov 21, 2011.]


On Nov. 17, Comerica Bank published the latest results in its continuing study of auto affordability. And it found that it's getting tougher to afford to change your car.

Auto loans a factor

Comerica's figures are based on the cost of buying and financing an averagely priced new vehicle. And it found that it took 24.2 weeks of average family income to do so in the third quarter of this year, up from 24.0 weeks during the previous three months. Using this measure, the bank says that auto affordability was at its best (just over 22 weeks of average family income) in 2009, the lowest since it started its study back in 1996. That was the year when affordability reached a high of 30.5 weeks.

Of course, this means that buying and financing a car is still remarkably cheap by historical standards. But the recent trend is decidedly upwards. As Robert Dye, Comerica's chief economist remarked in a press release: "Interest rates are low."

However, they are rising. The Federal Reserve's latest data on consumer credit show that finance companies' rates for new car auto loans dropped sharply in 2009, but have been rising since, and are now approaching pre-credit crunch levels. Although the Fed doesn't provide figures for used-car auto loans, there seems little reason to assume that they aren't following a similar trend.

Fewer deals?

Earlier this month, SmartMoney, a Wall Street Journal website, reported that there could be fewer deals available this holiday season on dealer's lots. It said: "Traditionally, the best car deals are offered during the year-end car sales season, which starts in October and peaks in December. So far, the opposite seems to be happening for many models."

And it went on to cite $3,000, $3,500 and even $4,000 cash back deals that had been dramatically scaled back to $1,000 by many dealers. However, it also stressed that such cuts were often local phenomena, so you should check out what the dealers in your area are offering.

Residual values

One way of driving down the total cost of owning a car is to buy with residual values in mind. If those are a priority for you, then you might want to head down to your Toyota dealership. In a Nov. 16 press release, Kelley Blue Book reports:

The brand in which the entire lineup of 2012 model-year vehicles is expected to retain the greatest amount of its original value after five years is Toyota. The luxury brand with the same claim is Toyota's more refined sibling, Lexus. Both brands regain the titles they claimed from Kelley Blue Book back in 2010.

Auto loans key

As regular readers already know, one of the most effective ways of keeping the total cost of ownership of a vehicle low is to shop around for the very best finance deals. And that's a process that can start, here and now, with online quotes for auto loans.


About Author:

Peter Andrew has been writing about -- and for -- business for more than two decades. For the last couple of years, he has found himself increasingly specializing in the U.S. financial sector.

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