COVID-19 is having a massive impact on the global economy and very few industries have been untouched by it. If your business relies on employees working in a physical space and profits only when people are willing to shop and spend, thereâs no escaping it.Â
Itâs no surprise, therefore, that the auto industry has been so negatively affected. In a recent guide, we looked at the many auto loan relief options that manufacturers offering in light of the coronavirus. In this guide, weâll highlight the ways this industry has been stung by the pandemic and look at what it means for the future of the US automobile and car financing sectors.
How is the Coronavirus Affecting Car Sales?
The automobile manufacturing industry experienced a minor surge at the beginning of 2020 but COVID-19 began to impact sales heavily in March. Many companies, Fiat Chrysler and General Motors included, began the year with strong momentum behind them, but March hit them hard and negated all the gains made during the first two months.
Both of these companies recorded losses for the first quarter of 2020, with Fiat Chrysler losing 10% in total.
Toyota, one of Americaâs biggest manufacturers, also recorded massive losses for March, with daily sales dropping by nearly a third during this month.
All of this is to be expected. The US has yet to announce the sort of national lockdowns we have seen in countries like the United Kingdom, Italy, Spain, and Greece, but many citizens are in self-isolation, countless businesses have shut their doors, and there are fewer cars on the road as a result.
Combine this with the fact that people are losing their jobs and worrying about their futures, and itâs easy to see why car sales have been affected so severely.Â
What are Manufacturers Doing About It?
Automobile manufacturers have moved quickly to stem the rising tide of financial devastation caused by COVID-19. Fiat Chrysler, for instance, is offering improved auto loan conditions to convince consumers to make sizeable purchases and keep the wheels turning. It has also made it easier to purchase a car for those in self-isolation or lockdown.
You can now buy a Fiat Chrysler online, with options for trade-ins, auto loans, and pretty much everything else you would get when buying in person.
Theyâre making it easier for you to buy because they need you to make that commitment. At the same time, the production of many new vehicles has been halted.
While some plants and showrooms are still open in the United States, Europe has experienced an almost continent-wide shutdown, leading to a decreased demand.Â
Manufacturers are also anticipating that things will get worse, as many experts predict that the USA will experience a spread similar to that of Spain and Italy.
How Has COVID-19 Hurt the Automobile Industry?
We have already touched upon some of the ways that COVID-19 has impacted the automobile industry, but the problem goes far beyond people not being able to make it to their local showrooms. Furthermore, if events in Europe are anything to go by, the problems will only get worse and it could be several years before the automobile sector recovers.
Here are a few reasons the industry has been hit hard:
There is a genuine fear that the COVID-19 pandemic will remain for all of 2020 and even beyond that. It seems unlikely that it will last for that long, but if the country doesnât go into lockdown and a vaccine isnât produced, itâs possible.Â
With this in mind, many consumers are putting off buying new cars out of fear that they simply wonât need them. New cars depreciate rapidly and can lose 20% in the first year. Whatâs the point of spending $30,000 on a new car if it will be worth $24,000 by the time you actually get behind the wheel?
Struggling Stock Markets
The stock market doesnât just impact big companies and investors. It also affects average American families who have their money tied into savings accounts, stocks, and pensions. Savers have lost a lot of money and are worried that theyâll lose even more in the near future, making buying a $30,000+ vehicle incredibly reckless.Â
Price of Gas
One of the few things that the automobile industry has on its side is the price of fuel, which has plummeted in the past few weeks. The problem is, no one cares about the price of fuel when theyâre stuck inside the house worrying about their health and their jobs.
Automotive plants canât simply shut down for a few weeks and then start up again when everything has cleared up. Many plants were already struggling to keep things together and once production stops and their profits disappear, they may close down entirely, taking hundreds, if not thousands of jobs with them.Â
Bottom Line: Car Sales After COVID-19
Itâs highly likely that the hard times will continue for the manufacturing industry. As the coronavirus continues to spread across the country, manufacturing plants will struggle to retain employees, showrooms will shut, and fewer Americans will be willing to pay the $30,000+ required for a new vehicle.
Whether this impacts the future price and availability of automobiles remains to be seen, but itâs highly likely that weâll see some massive changes in this industry. Americaâs best-loved manufacturers will lose millions and could be sent to the brink of financial destruction, while many salespersons and mechanics will likely lose their jobs as demand drops and garages/showrooms close down.Â
How COVID-19 is Affecting Auto Loans is a post from Pocket Your Dollars.
Timing is everything and when it comes to buying a car, that saying couldnât be more true. Negotiating and haggling with car salesmen can reduce the price of what you have to pay for a new whip. But if you want to get the best deal on a car, youâll need to know when to show up to the dealership. Whether youâre buying a used vehicle or a brand new ride, weâll tell you the best time of year to buy a car. Being that the purchase of a car is rather pricey, consider meeting with a financial advisor in your area to discuss your finances beforehand.
When Is the Best Time to Buy a New Car?
If youâre on a budget, one of the best times to buy a new car is the end of a model season. New car models are often introduced each year between late summer and early fall. While you might miss out on some new features, buying a new car in August or early September may save you some money.
Waiting until the end of the year to buy a new car can work in your favor as well. Many car dealers offer year-end sales in an effort to get rid of older vehicles and make room for new inventory. Buying a new car on a holiday like Christmas Eve or New Yearâs Eve is another way to get a deep discount.
If you canât wait until December to get a new car, you might want to buy a car at the end of the month or the end of a quarter. If a salesperson hasnât sold very many vehicles in weeks, he or she might be willing to compromise and lower the price of the car you want to buy. Even if a salesman has managed to sell multiple cars throughout the month, he might want to close one last deal in order to meet a sales goal or score a bonus.
Shopping for a car at the end of the day may or may not be effective. If you stop by a dealership an hour before itâs set to close, a salesperson may be open to negotiating so that he or she can end the day on a high note. But if he or she is used to working long hours, your sales associate may not be that flexible.
The Best Time to Buy a Used Car
A recent study from iseecars.com ranked the best times to buy a used car. At the top of their list are holidays including Black Friday, Veterans Day, Thanksgiving and Columbus Day. The months of November and December are also considered good times to purchase a used car.
According to the study, the months of April, May and June are some of the worst times to buy a used car. Specifically, Easter, Motherâs Day and Fatherâs Day are bad days for used-car buyers. But the No. 1 worst day to purchase a used car is the Fourth of July.
When Not to Buy a New Car
Generally, one of the worst times to buy a new car is in the spring. During this time of year, youâll see more people on car lots looking to soak up some sun and cash in their tax refunds. Other bad times to shop for new cars are whenever a particular vehicle is popular among consumers and whenever a new car model has been released.
Some people seem to think that buying a car on a rainy day is a good idea. But that approach usually doesnât work. In fact, you can expect car dealerships to be filled with people when thereâs bad weather simply because people tend to believe that theyâll find great deals on rainy days.
The best time of year to buy a car ultimately depends on your personal preferences and how much youâre willing to spend on a vehicle. If youâre rolling in dough and you want your car to have top-of-the-line features and amenities, you might want to buy a car as soon as a new model comes out. But if youâre trying to shave hundreds of dollars off your purchase price, experts say that itâs best to head to the dealership at the end of a period in the fall or winter, like the end of the month, quarter or year.
Our advice? When it comes to buying cars and getting your way at the dealership, it helps to know what youâre looking for. Doing plenty of research and knowing the make and model that you want your car to have can make it easier to figure out when to purchase your new vehicle.
Tips for Taking Care of Your Finances
- If you find yourself having some financial struggles, perhaps itâs time to have an outside resource step in to help you out. Financial advisors typically have extensive experience in a number of important areas of finance, like tax planning, retirement planning, budget planning and more. SmartAssetâs advisor matching tool can set you up with as many as three suitable advisors in just 5 minutes. Get started now.
- The best way to manage your money on both a short- and long-term scale is to create a firm budget. SmartAssetâs budget calculator can help you figure out exactly where youâre overspending.
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You’re involved in an accident, your car is wrecked, and your insurer has stepped in to cover the damages. All is well, and you only have the deductible to worry about, but what happens before the car is fixed? How do you continue to get to work every day and take the kids to school when your car is in theÂ repair shopÂ for the next few days or weeks?
That’s whereÂ rental carÂ reimbursementÂ coverageÂ steps in. If you have thisÂ optional coverageÂ on yourÂ carÂ insuranceÂ policy, you won’t need to worry.
Keep reading to learn how this coverage option works.
Rental CarÂ ReimbursementÂ vsÂ RentalÂ CarÂ Insurance
Before we go any further, it’s worth clarifying the potential confusion surroundingÂ rental carÂ coverageÂ andÂ rental carÂ reimbursementÂ coverage. The former includes damage waivers, property insurance, and liability coverage and protects you when you are driving aÂ rental car.
You will be offered this type of insurance when you rent a car and can also get it through your currentÂ insurance policyÂ or through yourÂ credit card, bank account or travel insurance.
As forÂ rental carÂ reimbursement, it is designed to cover the costs of renting a vehicle when your car is in the shop or has been stolen.
Rental carÂ reimbursementÂ only applies if yourÂ insurance companyÂ is paying for the repairs and those repairs are covered by yourÂ insurance policy. It is a coverage option that is typically only available to policyholders who haveÂ collision coverageÂ or comprehensive coverage insurance.
What DoesÂ Rental CarÂ ReimbursementÂ Cover?
Rental carÂ reimbursementÂ is designed to cover theÂ cost of aÂ rental car, but there are limits. MostÂ insurance companiesÂ will only cover you for 30 days and many also set aÂ daily limit, often between $50 and $100. This means that you can’t claim for costs above this or for a rental period that extends beyond it.
In some states and in some situations, you may not even need toÂ addÂ rental reimbursement coverageÂ to your policy as theÂ at-fault driverÂ could be responsible for yourÂ rental costs. In the event of aÂ car accidentÂ caused by a fully-insured driver, their liability insurance may cover you for transportation costs, while also paying for the damage done to you and your vehicle.
However, there is aÂ coverage limitÂ that means they may not be liable for all the costs you pay to theÂ rental carÂ company. In such cases, havingÂ rental carÂ reimbursementÂ coverageÂ on your policy will cover the difference and ensure you’re not out of pocket.
How Much Does it Cost?
The cost ofÂ rental reimbursement insuranceÂ differs from state to state and provider to provider. Your costs will also be higher if you are deemed to be a high-risk driver and have a history of at-fault accidents andÂ insurance claims. Generally, however, you can expect to pay anywhere from $3 or $4 a month extra to $15 or $20 a month extra.
It’s not a huge amount because the cover provided is very limited. For instance, at $50 a day over 30 days, the insurer’s liability is just $1,500, which is a fraction of the amount they can expect to lose with other coverage options.
How Does the Process Work?
You’re involved in a minor accident and your car is taken to theÂ body shop, now what? If you haveÂ rental coverage, you can do one of the following:
1. Pay for it Yourself
When you pay for the vehicle yourself, you have more choice about what car you rent and from where you rent it, and you can also get it as soon as you need it. If you choose this option, just make sure you keep a record of all the costs so you can report these to the insurer and get your money back.
By choosing this method, you have more control and providing you have cover, you shouldn’t encounter any issues when seeking reimbursement. Get theÂ rental vehicleÂ you want, drive it off the lot, and wait for your car to be fixed and your expenses to be covered.
2. Let YourÂ Insurance CompanyÂ Do It
The second option, and the best option, is to go through yourÂ insurance company. They will contact theÂ rental companyÂ on your behalf and deal with all of the red tape, ensuring you only get a car that you are fully covered for and providing you with all the necessary details at the same time.
By going through your insurer, you can avoid the hassle and they may even help you to get a better deal.Â
It’s worth noting, however, that your insurer will not pay for additionalÂ rental carÂ coverageÂ like damage waivers. But as noted already, yourÂ auto policyÂ may already provide you with the cover that you need.
Should You Get AdditionalÂ CarÂ RentalÂ Reimbursement Coverage?
On average, you will useÂ rental carÂ coverageÂ just once in a 10-year period, and you may only need it for a few days at a time. To determine whether thisÂ additional coverageÂ option is right for you, simply calculate how much it will cost you on a monthly basis and then compare this to how much it is likely to offer you.
For instance, let’s assume that you are charged $10 a month for this additional option. This means you will pay $120 a year or $1,200 over ten years. Assuming you’re being offered a maximum of $50 per day for 30 days, this means the benefits are capped at $1,500.
If you’re paying $15 a month instead, that’s $180 a year, $1,800 a decade, and more than you will get back. And, in both cases, we’re assuming that you rent a car for the full 30 days at the maximum allowed price, which is somewhat rare. As a result, you can probably overlook thisÂ additional coverageÂ option when those are the prices quoted.
Bottom Line: ChoosingÂ Insurance Coverage
FromÂ carÂ rentalÂ coverageÂ andÂ rental carÂ reimbursementÂ toÂ roadside assistance, new car replacement and more, there is no shortage of options for the average driver.Â
But as tempting as it is to add all of these options to yourÂ autoÂ insuranceÂ policyÂ in the knowledge that you’ll be fully covered, the costs can spiral out of control very quickly. You could find yourself spending an excessive amount of money unnecessarily, and at a time when everyone is watching their budgets, that’s never a good thing.
Think aboutÂ rental carÂ reimbursementÂ carefully and reject it if you don’t need it, even if it is only $10 or $20 extra a month.Â
A Guide to Rental Reimbursement Coverage is a post from Pocket Your Dollars.
These days, it can take a long time to pay off a car loan. On average, car loans come with terms lasting for more than five years. Paying down a car loan isnât that different from paying down a mortgage. In both cases, a large percentage of your initial payments go toward paying interest. If you donât understand why, you might need a crash course on a concept called amortization.
Find out now: How much house can I afford?
Car Loan Amortization: The Basics
Amortization is just a fancy way of saying that youâre in the process of paying back the money you borrowed from your lender. In order to do that, youâre required to make a payment every month by a certain due date. With each payment, your money is split between paying off interest and paying off your principal balance (or the amount that your lender agreed to lend you).
What youâll soon discover is that your car payments â at least in the beginning â cover quite a bit of interest. Thatâs how amortization works. Over time, your lender will use a greater share of your car payments to reduce your principal loan balance (and a smaller percentage to pay for interest) until youâve completely paid off the vehicle you purchased.
Not all loans amortize. For example, applying for a credit card is akin to applying for a loan. While your credit card statement will include a minimum payment amount, thereâs no date set in advance for when that credit card debt has to be paid off.
With amortizing loans â like car loans and home loans â youâre expected to make payments on a regular basis according to something called an amortization schedule. Your lender determines in advance when your loan must be paid off, whether thatâs in five years or 30 years.
The Interest on Your Car Loan
Now letâs talk about interest. Youâre not going to be able to borrow money to finance a car purchase without paying a fee (interest). But thereâs a key difference between simple interest and compound interest.
When it comes to taking out a loan, simple interest is the amount of money thatâs charged on top of your principal. Compound interest, however, accounts for the fee that accrues on top of your principal balance and on any unpaid interest.
Related Article: How to Make Your First Car Purchase Happen
As of April 2016, 60-month new car loans have rates that are just above 3%, on average. Rates for used cars with 36-month terms are closer to 4%.
The majority of car loans have simple interest rates. As a borrower, thatâs good news. If your interest doesnât compound, you wonât have to turn as much money over to your lender. And the sooner you pay off your car loan, the less interest youâll pay overall. You can also speed up the process of eliminating your debt by making extra car payments (if thatâs affordable) and refinancing to a shorter loan term.
Car Loan Amortization Schedules
An amortization schedule is a table that specifies just how much of each loan payment will cover the interest owed and how much will cover the principal balance. If you agreed to pay back the money you borrowed to buy a car in five years, your auto loan amortization schedule will include all 60 payments that youâll need to make. Beside each payment, youâll likely see the total amount of paid interest and whatâs left of your car loanâs principal balance.
While the ratio of whatâs applied towards interest versus the principal will change as your final payment deadline draws nearer, your car payments will probably stay the same from month to month. To view your amortization schedule, you can use an online calculator thatâll do the math for you. But if youâre feeling ambitious, you can easily make an auto loan amortization schedule by creating an Excel spreadsheet.
To determine the percentage of your initial car payment thatâll pay for your interest, just multiply the principal balance by the periodic interest rate (your annual interest rate divided by 12). Then youâll calculate whatâs going toward the principal by subtracting the interest amount from the total payment amount.
For example, if you have a $25,000 five-year car loan with an annual interest rate of 3%, your first payment might be $449. Out of that payment, youâll pay $62.50 in interest and reduce your principal balance by $386.50 ($449 â $62.50). Now you only have a remaining balance of $24,613.50 to pay off, and you can continue your calculations until you get to the point where you donât owe your lender anything.
Related Article: The Best Cities for Electric Cars
Auto loan amortization isnât nearly as complicated as it might sound. It requires car owners to make regular payments until their loans are paid off. Since lenders arenât required to hand out auto amortization schedules, it might be a good idea to ask for one or use a calculator before taking out a loan. That way, youâll know how your lender will break down your payments.
Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First youâll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.
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