Rising interest rates and record inflation Americans have been experiencing this year are the reason many new purchases, big and small, are being put on the back burner. Not only are the prices of everyday goods much higher, but the cost of borrowing to finance something bigger like a new car is much more expensive than it was just a year ago. .
All of this has left many of us with a financial conundrum: should we keep expecting certain purchases right now?
Select went to the experts to see what they were doing themselves in hopes of giving us some better insight. Here’s a look at the kinds of purchases money experts are reluctant to make right now.
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A new car
Jim Droske, president of a credit counseling company Illinois Credit Servicestells us he needs a newer vehicle, but is still waiting given the higher interest rates to finance a new auto loan, as well as the fact that the current auto market is making it difficult for consumers to get a good deal.
“Even though I would get a higher trade-in value for my car, it makes sense to delay buying a vehicle until the supply and demand economy changes to be more favor of me, the consumer,” says Droske.
Although Brenton Harrisoncertified financial planner at Henderson Financial Group, says he and his wife have two cars that run well, he admits that as they are both older models they were tempted to upgrade one when the rates were low to “keep up the rhythm of the Joneses”. He has since changed his mind in this new financial environment.
“I can’t think of an ‘asset’ that goes down in value faster than a car,” Harrison says. “And with manufacturing delays, chip shortages and natural price increases due to inflation, any itch I’ve had to buy a new car will remain intact.”
However, one financial expert we spoke to actually managed to score a bargain when she decided to buy her car after its lease ended. Kara Stevens, personal finance blogger at The frugal feminist, had extended her car lease to four years, by which time she only had 8,000 miles on it. As a result, it decided to keep it since the buyout offer was calculated before inflation. “It was a win,” Stevens said.
Home modernization and new construction
In addition to wanting to upgrade a car, Harrison and his wife were also planning several home improvements, including customizing a closet, protecting their back porch, and upgrading several bathroom fixtures. But that was before inflation and now that labor and materials are much more expensive, they decided to wait.
“While we never put off needed repairs, we have paused any home projects that we don’t have to undertake,” Harrison says.
John Ulzheimer, a credit expert formerly of FICO and Equifax, was willing to ignore the rising costs of building materials such as lumber and appliances to build a new home — he can’t, however, exceed the near -doubling of interest rates, so it’s delaying building a house for now.
“Finance a home at more than 5%, when less than a year ago it was considered subprime, is too much to overlook,” Ulzheimer says.
Variable rate loans
Unlike fixed interest rates, variable rates indicate that the interest rate you pay can go up or down at any time. Rates generally fluctuate with the federal funds rate, so in a rising rate environment, potential borrowers generally tend to delay any floating rate financing because it’s likely to soon become more expensive to carry that debt.
Harrison’s case is just one example. “As a business owner, there are times when the investments I need to grow my income — new staff and technology upgrades, etc. — exceed my cash flow capabilities,” he says. For this reason, he typically turns to commercial lines of credit and other variable-interest debt whose payments allow him to buy what he needs and make small monthly payments until income increases.
“As costs and interest rates rise, however, variable-interest debt is one of the first places where these effects can be felt,” says Harrison. “For now, I’m avoiding purchases that I can’t pay for with cash, even if it means temporarily turning down opportunities to grow my business.”
This includes credit cards…
Credit cards are a more common type of loan with variable interest rates that are already high as is. The Federal Reserve rate hike means your credit card debt also becomes more expensive. Although Harrison says he’s taken advantage of 0% APR credit cards in the past – that is, cards that offer an introductory period of 0% interest on new purchases and/or balance transfers – he’s hesitant to sign up yet.
“These companies continue to offer aggressive offers during periods of inflation, hoping that you will still maintain a credit balance after the introductory period expires,” says Harrison. “I avoid the temptation to take out new cards for fear of interest rate inflation if an emergency prevents me from repaying my debt before the end of the offer period.”
Take note that a 0% APR credit card can be beneficial, however, if you know for sure that you will be able to pay off your balance during the introductory period. (In Harrison’s case, it helps to have an emergency fund with money already allocated as a backup in case something goes wrong. Is come so he doesn’t have to dip into his credit card payments.)
The Wells Fargo Reflect® Card, for example, offers no interest for 18 months from account opening on eligible purchases and balance transfers (after, 15.24% to 27.24% variable APR). Cardholders can receive an intro extension APR of up to three months with on-time minimum payments during the introductory and extension periods, bringing the total interest-free period to 21 months. This encourages responsible credit card behavior while giving you more time to pay off your debt.
The idea is that you pay off your balance in total over the first 18 months (or 21, if applicable) so you don’t build up a balance which then – once the introductory period is over – receives variable rate interest. in addition. .
On the Wells Fargo secure site
0% intro APR for 18 months from account opening on eligible purchases and balance transfers. Intro Extension APR for up to 3 months with on-time minimum payments during the introductory and extension periods. 15.24% – 27.24% variable APR thereafter; balance transfers made within 120 days qualify for the introductory rate
15.24% – 27.24% Variable APR on purchases and balance transfers
Balance Transfer Fee
3% introductory fee ($5 minimum) for 120 days from account opening, then up to 5% ($5 minimum)
Foreign transaction fees
If you can, it’s not a bad idea to delay some purchases until the economy is in a more stable position – hey, even the experts do that. And with another expected rate hike coming later in September, it’s definitely important that you pay attention to how much variable interest rate debt you’re taking on right now.
In the meantime, you can benefit from a rising rate environment by setting aside funds that you would otherwise use to make monthly payments on a new car or home renovation. A high-yield online savings account is a good option right now, as banks have responded to Fed rate hikes by paying higher annual percentage yields, or APYs, to their customers.
Take into account LendingClub® Bank High Yield Savings Account, which offers one of the highest returns on your money with an APY of 2.07%, as well as a free ATM card with no ATM fees, no monthly maintenance fees and no minimum balance requirement. You will just need a $100 deposit to open an account.
LendingClub Bank, NA, Member FDIC
Annual Percentage Yield (APY)
The minimum balance
No minimum balance required after $100.00 to open the account
Excessive transaction fees
Offer a current account?
Offer an ATM card?
An alternative option is the Bask Interest Savings Account, which offers an equally high APY at 2.02% to all savings account holders and particularly stands out to frequent flyers. Savers can also choose to earn American Airlines AAdvantage® miles back instead, at the rate of 1.2 miles for every dollar saved annually. They can then use these miles for flights on American Airlines or one of its 20 partner airlines. Bask also offers no monthly fees and no minimum deposit.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.