Will Buying a Car Be Cheaper in 2024?

Life sure is expensive these days, and car purchases are no exception. As we head into a new year, let's take a closer look at whether it might cost you less to buy a car in 2024.

The federal funds rate may decline in 2024

The Federal Reserve hiked rates 11 times between March 2022 and July 2023, and the current federal funds rate stands at 5.25% to 5.5%. While this figure is not reflective of interest rates on consumer borrowing (such as in the form of credit cards, personal loans, or auto loans), it does determine how much banks charge each other for short-term borrowing.

When the federal funds rate increases, banks also raise rates for consumers. This can make borrowing money more expensive. Thanks to those interest rate hikes over 2022 and 2023, we are watching inflation slowly come back to more manageable levels. As of the most recent Consumer Price Index Summary report, inflation stood at 3.1% -- a far cry from the peak of 9.1% in June 2022. The Federal Reserve is targeting a 2% rate of inflation, but we're not so far off now.

So we might see the federal funds rate decrease in the new year. This would likely mean lower rates for auto loans -- and therefore cheaper car financing for American consumers.

What about car prices?

While it's now easier to source a new car (depending on your preferred make and model) than during the height of COVID-19, you might pay through the nose for it. According to Kelley Blue Book, the average transaction price for a new car stood at $48,247 as of November 2023. That's 23% higher than three years prior, in November 2020 -- that same average price was then $39,259.

Used car prices are thankfully starting to ease -- KBB reports that the average used car price in October 2023 was $26,533. That's a drop of 3% over the previous year.

It's hard to say for sure where car prices will be in 2024, but if you can be flexible about make and model, and practice patience, you might be able to score a deal.

Tips to help you save on a car purchase

If you can't wait for the federal funds rate to come down, and then have to wait around to see whether auto lenders will start to offer lower APRs on loans to car buyers, there are a few moves you can focus on ahead of buying:

• Think used: As you saw above, you can likely expect to pay less for a used car than a new one. If saving money is an important part of sourcing a vehicle, buying used could be a good move.
• Talk to multiple lenders: Even if your bank is emailing you constantly about taking out an auto loan, don't assume that'll be the best deal out there. Check out our list of the best auto loans for some ideas.
• Improve your credit: The better your credit, the less you'll pay to secure an auto loan. Your interest rate is directly tied to your credit score, and lenders save their best rates for borrowers they consider to be the lowest risk -- namely, those of us who've proven our willingness to make on-time payments. Focus on polishing your payment record and paying down existing debt, if you can.
• Make a robust down payment: It's a good idea to put down at least 10%-20% of the car's purchase price, if you can. Financing less means you'll pay less in interest, and again, be less of a risk to the lender if you've got some skin in the game, so to speak.

I hope a lot of aspects of American life become cheaper in 2024, from car purchases to homes to groceries and beyond. If you're hoping to buy a new car in the new year, be sure to shop around to get the best deal you can -- on both an auto loan and the car itself.