Here’s what buys money experts are currently holding back
The rising interest rates and record high inflation Americans have experienced this year are the reasons many new purchases, large and small, are being put on hold. Not only are the prices of basic necessities much higher, but the cost of borrowing to finance something bigger like a new car is also much more expensive than it was a year ago.
All of this has left many of us with a financial conundrum: should we continue to wait with certain purchases at the moment?
Select went to the experts to see what they’re doing themselves, hoping to give us better insight. Here’s a look at the types of purchases money pundits are cautious about right now.
Subscribe to the Select newsletter!
Our best picks in your inbox. Weekly delivered shopping recommendations that improve your life. Sign up here.
A new car
Jim Droske, president of credit advisory firm Illinois Credit Services, tells us he needs a newer vehicle but is still holding back given the higher interest rates to fund a new car loan, as well as the fact that the current auto market is making it difficult for consumers to get a good one land business.
“Even if I would get a higher resale value for my car, it makes sense to wait until the supply and demand economy changes in my favor as a consumer before buying a vehicle,” says Droske.
Although Brenton Harrison, a certified financial planner at Henderson Financial Group, says he and his wife have two cars that run smoothly, he admits they were tempted to upgrade one of them because they were older models, than interest rates to ” keep up with the Joneses.” In the meantime, however, he has made a change of heart in this new financing environment.
“I can’t think of an ‘asset’ that will go down in value faster than a car,” says Harrison. “And with the manufacturing delays, chip shortages, and natural price increases due to inflation, any itch I had to buy a new car won’t be scratched.”
However, one money expert we spoke to actually got a good deal when she decided to buy her car after the lease expired. Kara Stevens, a personal finance blogger at The Frugal Feminista, had extended her car lease to four years and had just 8,000 miles in the bank at the time. As a result, she decided to keep it as the takeover bid was calculated pre-inflation. “It was a win,” says Stevens.
Housing renovation and new construction
In addition to wanting to upgrade a car, Harrison and his wife planned several home remodeling, including customizing a closet, screening their back porch, and upgrading several bathroom light fixtures. But that was before inflation, and now that labor and materials cost so much more, they’ve decided to hold back.
“While we would never put off necessary repairs, we’ve pressed pause on any home projects we don’t need to take on,” Harrison says.
John Ulzheimer, a former FICO and Equifax credit expert, was willing to overlook the increased cost of building materials like lumber and equipment to build a new home — but he can’t get over the nearly doubling in interest rates, so he’s building it of a house delay for the time being.
“Financing a home at over 5%, which less than a year ago was considered subprime, is too much to overlook,” says Ulzheimer.
Loans with variable interest rates
Unlike fixed interest rates, variable interest rates indicate that the interest rate you pay can go up or down at any time. Interest rates generally fluctuate in line with the Federal Funds Rate, so in an environment of rising interest rates, potential borrowers tend to delay variable rate financing as it is likely to become more expensive to bear that debt soon.
Harrison’s case is just one example. “As a business owner, there are times when the investments I need to grow my sales — new employees and tech upgrades, etc. — are more than I can afford,” he says. Because of this, he would typically be on the lookout for business lines of credit and other adjustable-rate debt whose payments allow him to buy what he needs and make small monthly payments until income picks up.
“However, as costs and interest rates rise, adjustable rate debt is one of the first places to feel that impact,” Harrison explains. “I’m avoiding purchases that I can’t pay for with cash for the time being, even if that means temporarily shutting out 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. The Federal Reserve’s hike in interest rates means your credit card debt is getting more expensive, too. Although Harrison says he’s used 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 currently reluctant to sign up for more .
“These companies continue to offer aggressively during periods of inflation in the hope that they will still have a balance after the introductory period is over,” says Harrison. “I avoid the temptation to sign up for new cards because I’m concerned about what the interest rates could be if an emergency prevents me from paying off my debt before the offer period ends.”
Note, however, that a 0% APR credit card can be beneficial if you definitely know you can cash out 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 happens does come so he doesn’t have to dig into his credit card payments.)
For example, the Wells Fargo Reflect® Card offers no interest on purchases and qualifying balance transfers for 18 months from account opening (15.24% to 27.24% variable APR thereafter). Cardholders can get an introductory APR extension of up to three months with on-time minimum payments during the introductory and renewal periods, increasing the total interest-free period up 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 full within the first 18 months (or 21 if applicable) so that you don’t build up a balance on which – after the end of the introductory period – variable interest is calculated.
Wells Fargo Reflect® card
On Wells Fargo’s secure website
0% introductory APR for 18 months from account opening on purchases and qualifying balance transfers. Introductory APR renewal of up to 3 months with on-time minimum payments during introductory and renewal 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 transfers
Introductory fee of 3% (minimum $5) for 120 days from account opening, thereafter up to 5% (minimum $5)
foreign transaction fee
If you do not make any purchases yourself
If you can, it’s not a bad idea to postpone some purchases until the economy is in a more stable position – hey, even the pundits are doing it. And with another rate hike expected later in September, it’s certainly important to be careful about how much adjustable-rate debt you’re taking on right now.
In the meantime, you can take advantage of a rising interest rate environment by saving money that you would otherwise use to pay monthly payments for a new car or home remodeling. 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 rates (APYs) to their customers.
Consider LendingClub® Bank’s High Yield Savings Account, which offers one of the highest returns on your money at 2.07% APR, plus a free ATM card with no ATM fees, no monthly account maintenance fees and no minimum balance requirement. All you need is a deposit of $100 to open an account.
LendingClub High-interest savings
LendingClub Bank, NA, member of the FDIC
Annual Percentage Return (APY)
No minimum balance requirement after $100.00 to open account
Excessive transaction fee
Offer checking account?
Offer ATM card?
An alternative is the Bask Interest Savings Account, which offers all savings account holders a similarly high annual interest rate of 2.02% and is particularly good for frequent travelers. Savers can also choose to earn American Airlines AAdvantage® Miles back at a rate of 1.2 miles for every $1 saved per year. You can then use those miles to fly on American Airlines or one of over 20 partner airlines. Bask also offers no monthly fees and no minimum deposits.
Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editorial team and has not been reviewed, approved, or otherwise endorsed by any third party.