Financing pushes monthly cost of new cars to record $702

The average new-car transaction in July was $45,869, according to the J.D. Power/LMC Automotive forecast. That’s down a tad from the record $45,988 set in June.

Several factors are playing into higher costs, experts say:

• Higher interest rates for auto loans: The average is about 5.5%, up from 4.5% a year ago, Edmunds data shows. That rate could tick higher, given that the Federal Reserve is expected next month to again raise a key interest rate that many consumer loans derive from.

• Supply chain constraints: In the midst of a persisting shortage of computer chips needed to complete today’s cars, consumer demand continues to outstrip supply, which has led to elevated prices. Over the last year, prices on new cars have risen 10.4%, according to the latest Consumer Price Index.

• Vehicle popularity: Consumer preference also has shifted over the last decade or so to SUVs and trucks from sedans, which may cost less.

• Fewer incentives: With dealers not struggling to make sales, manufacturer discounts have fallen to an average of $894 per vehicle, down 54.7% from a year ago, according to the J.D. Power/LMC estimate. It’s the first time the average has fallen below $900.

If you plan to finance the purchase of a new car, there are some things to consider that could lower the amount you need to finance.

For starters, keep in mind that consumers with higher credit scores are able to secure the best loan terms.

“Boosting your score might make all the difference in an auto loan … the higher you can get it, the better the rate you’ll be offered,” said certified financial planner Malcolm Ethridge, an executive vice president and financial advisor at CIC Wealth in Rockville, Maryland.

Additionally, if you plan to use dealer financing, you may be able to negotiate the interest rate down, Ethridge said. “People probably don’t focus on that,” he said.

You also should be realistic about how much car you actually need. Some cars may have features that push the price up but that you could live without, he said.

“Pay attention to finding one that has fewer features … because that can bring down the price of the car,” Ethridge said.

And if you’re trading in a car, that also will reduce the amount you need to finance. Depending on the specifics of the car, it could be worth more than you anticipate.

Trade-in values “are still extremely good compared to what it would have been worth in typical times,” said Drury at Edmunds. For instance, for 5-year-old cars, “you are still thousands of dollars ahead of where you technically should be,” he added.

“If you look at a 5-year-old car five years ago versus one today, there’s no comparison,” Drury said. “You have so much equity in that car.”