Due to the overall financial climate brought about COVID-19, many of us put on hold the plans that we had to make large purchases. The allure of a new car seemed to lose its shininess in the midst of the pandemic taking hold, and many people didn’t want to think about moving houses with the threat of the virus spreading.
But now that the economy is slowly beginning to open back up to the glory of summertime, many of us are asking, “Is now a good time to make a big purchase?” And for many of us, that will require taking out a loan. But is summer the best time of year to finance a big purchase?
WHAT TYPE OF BIG PURCHASE DO YOU WANT TO FINANCE?
Financing large purchases aren’t a one-size-fits-all kind of deal, so it would be difficult to say any time of year is “best” for all types of big purchases. Here are a few things to consider for the two largest purchases most of us make.
FINANCING A HOUSE
A house is the largest single purchase most of us will make during our lifetimes, and for many of us, the money to make that purchase will come, at least in part, by borrowing from a lender.
This summer, due to the pandemic-caused economic slowdown and the resulting steps taken by the Federal Reserve, interest rates are at all-time lows. You could save thousands of dollars in interest payments by choosing to purchase or even refinance a home right now.
But let’s say we weren’t in the middle of the international pandemic—would summer be the best time of year to finance a home purchase? Not necessarily. In fact, it seems that the best time of year to finance a home (in a non-pandemic year) is the fall. Why? Simply put, there’s less competition. Children are back in school, families are busier, and sellers who have had houses on the market all summer are ready to make a deal. Towards the end of the year, sellers are wanting to liquidate their house assets so that the sale can be completed before the tax year ends. Along with that, financiers are relying on their year-end bonuses, and the closer you get to the end of the year, the more loan officers are wanting to get your business.
But if you can’t wait for the fall, it is also prudent to look at the time of month that you’re seeking out financing.
Credit Sesame describes the mortgage business cycle like this:
- The beginning of the month is generally devoted to acquiring and setting up new loans.
- The middle of the month is all about gathering trailing documents and getting loans ready for month-end.
- The end of the month is a mad rush to get as many loans closed as possible.
Mortgage lenders are looking to meet those monthly quotas, so in order to close the loan by the end of the month, they are looking for loans to get started the first few days of the month. That is when you may be able to get a better finance situation than if you were to try the last half of the month.
When is the best time to finance an automobile? On one hand, never. Due to their immediate depreciation when you drive a car off the lot, as well as their comparatively high-interest rates, financing an automobile is rarely a good choice. With the right planning, you would do better to set aside cash each month into a car savings account and pay for a car in cash. Doing this would gain you better bargaining power (a car salesman just can’t say no to cash in hand), as well as saving you thousands of dollars over the life of the car loan due to you not paying any interest.
But sometimes you’re not able to plan ahead to make that kind of purchase and you’re left with the only option being to finance that vehicle. So, is summer the best time to finance your car? Not likely.
Car manufacturers and sales lots are still flush with the current year’s product in the summertime. If you were to go to a car lot in the fall, especially the late fall and early winter (think December 31st), you would likely save thousands of dollars on the car purchase price due to salespeople needing to meet their monthly/yearly quotas to secure nice bonus checks. That’s also the time of year that the dealerships are needing to make room for the following year’s models to fit on the lot. According to TrueCar.com, you can actually save up to 8.3% off the price of a car if you make your car purchase on New Year’s Eve instead of any other day. That’s huge!
WE’RE HERE TO GUIDE YOU
While we’re not personal shoppers (accountants aren’t necessarily known for their style!), we are experts in helping you use your money wisely. If we can help answer any questions you may have about financing your next big purchase, please let us know by calling us at (888) 272-7102 or sending us an email. We’re here to help you reach your vision!