While it’s always tempting to get that tax return and buy a new car, in 2023 it might not be such a great idea. Breaking down, here are three reasons to skip buying a new car this tax season. Market constraints and economic problems are common problems but they should mostly be resolved before the end of the year. It may take some patience, but waiting after tax season is over to buy your next car could save you money and.
1. Interest rates are still high
While higher interest rates have affected homebuyers, those seeking auto loans are also seeing money. The interest rates used are exceptionally high at the moment. This makes buying you a new car difficult.
Slightly in January, prices are again on the rise. Even worse, buying an overvalued used car isn’t just bad today. When used car values drop, they will take the value of your recently purchased car with them. This means accelerated depreciation, which makes it more difficult to trade in or sell the car unless the loan term is about to expire.
For example, consider buying a $20,000 used car right now. In six months, the market has cooled, you’ve added some miles, and that car is now only worth $13,000.
With a five-year loan at 7% interest, you’ll still owe $19,800 of the principal on a car worth a lot less. In fact, even if the depreciation bottomed out at $13,000, it would take nearly three years for the bonus amount and the value of the car to settle.
Combine high car values with skyrocketing interest rates, and it’s clearly a smart move to skip buying a new car this tax season.
3. Low new car inventory means less chance of discounts when buying a car this tax season
While used car values grab most of the headlines, skipping a buy this tax season is also beneficial. New car inventory is improving but still limited compared to pre-pandemic years. That means fewer discounts and special pricing opportunities, so there’s little incentive to buy new cars during tax season.
If a new car is on your horizon anyway, put your tax return into a safe savings account for now. It might be worth waiting to get a new car at a better price. Even better, interest rates and used car prices are expected to drop until then, according to the . That means a better car market for everyone, and better deals on new and used cars.
Wait for a cooler market and skip buying a new car this tax season
Whether you’re waiting for interest rates to drop or car prices to return to normal, it may be wise to skip buying a new car this tax season. As the year goes on, both the borrowing rate and vehicle values should decrease, improving the car buying market. For many, waiting until after tax season and into the latter part of 2023 may be a wiser move than buying a new car outright.
