The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
As the holiday season approaches, the last thing you want to consider is the recession that is expected to arrive over the next year. But ignorance is not always bliss. Growing inflation and the likely recession will impact all facets of the economy. This includes car buying, with new vehicles averaging over $48,000 in October, according to Kelley Blue Book.
If you’re like the 69 percent of Americans that are worried about this recession, patience may save you money. Rather than gifting a car with a big bow this holiday season — to yourself or someone else — consider where prices stand and how to best prepare for future vehicle financing.
Recession preparedness statistics
Unfortunately, the holiday season is famous for overspending — many times resulting in consumers spending beyond their means. A recent Bankrate survey found that 27 percent of shoppers admit to straining their budget in the name of holiday gifting. And if consumers stay on trend with spending this year thus far, issues may arise.
In March of 2022, even with inflation up 8.5 percent, consumers spent 18 percent more than two years prior, according to a McKinsey study.
- 51 percent of adults believe that inflation will be higher a year from now than it is today.
- Car loan balances sit at an average of $5,210 as of November 2022.
- The average monthly payment for new cars in the second quarter of 2022 was $667.
- The average monthly payment for used cars in the second quarter of 2022 was $515.
- New vehicle sales fell from over 16.9 million in 2005 to 10.4 million in 2009 during the recession.
- 41 percent of Americans do not feel prepared for a recession if it were to happen by the end of 2023.
- 38.22 percent of consumers financed new vehicles in the second quarter of 2022.
Holiday shopping statistics
Many holiday shoppers fall into the trap of wanting to get the perfect gift, which can mean spending over budget and even straining finances. Some shoppers this year though are taking a different approach, with 3 out of 5 planning to spend less, according to Bankrate.
This is a smart choice as the consumer price index sat at 298.1 in mid-November, up from 274.1 a year ago. No matter your reason for tightening your wallet this winter, now is a vital time to be aware of how overspending can impact all facets of your fiscal health.
- 40 percent of holiday shoppers say that inflation will change the way they shop this year.
- There are nearly 29 percent more used car deals on average in January.
- 84 percent of shoppers will employ money-saving tactics this holiday season.
- Winter sees an increase in people buying luxury vehicles and sports cars.
- 27 percent of holiday shoppers admit to their budget feeling strained over the season.
- 59 percent of shoppers will buy fewer items this holiday season.
How to prepare for a recession in 2023
While drivers in 2008 were dealt a similar hand, the predicted recession in 2023 carries many factors that those 13 years ago did not have to consider. Primarily, the ongoing supply chain issues that continue to raise vehicle prices.
Due to stock limitations, you likely won’t benefit from many of the discounts that ‘08 drivers were offered. Fortunately, there are still some ways to prepare when it comes to personal finance and vehicle purchases. Consider the following tips to save money during a recession.
1. Only buy what you can afford
The primary way to ensure that you do not fall into a precarious financial spot when buying a car is to only buy what you can afford. Take the time to calculate this number while also factoring in additional costs that will build throughout ownership — like trips to the mechanic and filling up at the pump.
2. Build up your emergency fund
Experts advise that your emergency fund should cover three to six months of expenses. But pennies can build, so it is smart to begin saving as soon as possible. Even better, consider starting your emergency fund in a high-yield savings account — which you make interest in.
3. Buy electric
Although electric vehicles can carry a higher upfront cost, they can cost you less over the entire length of vehicle ownership. Fewer trips to the gas pump can add up to thousands saved, so consider a green auto loan if driving an EV fits into your budget and lifestyle.
4. Be wary of a long-term loan
While a long-term loan can be appealing, it comes with some risk. Signing off on an extended loan will mean your monthly cost is cheaper, it does not mean you will spend less altogether — in fact, the opposite is true. A longer-term loan stretches out the amount of money you must pay over a longer period, meaning there’s more time for interest to accrue.
5. Apply for loan preapproval
While not all lenders offer the option to apply for loan preapproval, it is one of the most effective ways to understand your financial contribution to vehicle ownership upfront. Loan preapproval simply means you can lock in the expected monthly cost prior to signing on the dotted line. By doing this you can know if the vehicle you’re considering will seamlessly fit into your budget.
6. Refinance your current vehicle
If your loan is stretching your budget, you may want to refinance your current vehicle to lower your monthly cost. This is especially true if your credit score has improved since you received your loan or if you initially signed off with a dealer.