It’s a good time to not have to take out a loan.
- Borrowing rates are up right now across the board.
- It’s a good time to rethink major purchases you can’t pay for outright.
- Carefully consider large purchases that you need to finance.
Most people who purchase a home can’t just pay for it in cash. Rather, they need to finance their home purchases with a mortgage loan. And while buying a car in cash is a lot more feasible due to the lower price point, the reality is that many people don’t have enough money in their savings accounts to cover a $400 expense, let alone hand over $40,000 for a vehicle. As such, it’s pretty common to finance a vehicle purchase.
But a large number of consumers are now having second thoughts about purchasing homes and cars. In fact, 44% specifically say they’re delaying major purchases like homes and vehicles, according to the latest BMO Real Financial Progress Index. And if you have the option to put off a big purchase, it pays to consider doing so.
It’s a really bad time to be borrowing money
If you need a car to get to work or just plain function and your current one is no longer drivable, then delaying a vehicle purchase won’t work. Similarly, if your landlord isn’t renewing your lease and you can’t find an affordable rental anywhere close to where you want to be, then pursuing a home purchase may be your only option.
But if you’re in a position where you don’t need to buy a car right away, or you’re in a stable housing situation that isn’t making you miserable, then putting off a vehicle or home purchase could work to your benefit. And the reason largely boils down to the cost of borrowing.
The Federal Reserve has been aggressively hiking up interest rates in an effort to slow the pace of inflation. By making it more expensive to borrow, the hope is that consumers will start to cut back on spending enough to bridge the gap between supply and demand that’s causing inflation levels to spike.
But because borrowing rates are so high across the board, signing a mortgage or auto loan is going to mean paying more money than you normally would. And that’s not a good thing given that both home and car prices are up due to limited supply.
Not only might a mortgage or auto loan be more expensive than usual, but you might have to compromise on the home or vehicle you end up with due to issues with supply. Now it’s one thing to resign yourself to a rental house you aren’t thrilled with for a year because there aren’t many homes available in your neighborhood. But it’s another thing to commit to buying a home that doesn’t really check off all the right boxes.
Similarly, if you’re buying a car, you may end up driving it for 10 years or longer. And so that’s not the sort of purchase you’ll want to compromise on.
Think carefully about big purchases
From a borrowing and inventory perspective, it’s a bad time to buy a home or car. But also, for months, experts have been warning about a potential recession in 2023. And if that comes to be, you may not want a massive loan hanging over your head.
All told, it’s definitely not the ideal time to be making a vehicle or home purchase. If you can manage to wait, you’re probably better off doing so.
Alert: highest cash back card we’ve seen now has 0% intro APR until 2024
If you’re using the wrong credit or debit card, it could be costing you serious money. Our expert loves this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our expert even uses it personally. Click here to read our full review for free and apply in just 2 minutes.
Read our free review