Used-car shoppers are having a rough year. Prices are high, loan rates are high, and the overall market isn't growing. Carvana sold 39% more cars anyway. Its stock jumped 16% on Thursday, Oct. 29. The Journal's Christopher Otts says that put it on track for its best day in more than a year. We don't own it. We read the story for what it says about the person signing the loan.
Carvana (CVNA) sells used cars online and delivers them. Third-quarter vehicle sales rose 39%. The company says its business has roughly doubled in two years. Even so, it holds only about 2% of a very fragmented market. That small slice is why analysts think it has plenty of room to grow, Otts writes.
The quarter wasn't all good news. Sales grew faster than profit. Advertising cost per car rose. Higher diesel prices and higher interest rates took a bite out of the bottom line. Investors shrugged it off. The stock was already pricey, Otts notes, and the jump made it pricier. The paper's chart shows the shares near $75 in early September. They had slid under $60 before Thursday's jump.
What the loan costs now
The same Friday paper prints the week's borrowing rates on B6. Bankrate's survey of banks puts the 48-month new-car loan at 6.93%. Here's that rate on a $30,000 loan, by our own math. The payment comes to about $717 a month. Over four years you'd pay more than $4,000 in interest on top of the car. A used car often carries a higher rate than a new one, so the real number for a Carvana shopper may be worse. Carvana's growth tells you people are still buying. The rate tells you what the buying costs.
Our read
Cash Flow, M5. Carvana isn't in any of our model books, and a stock that jumped 16% on a rich valuation isn't a reason to buy a stock or a car. The planning point is the loan. A car is two purchases, the vehicle and the money to pay for it. Most people shop hard for the first and take whatever the dealer offers on the second. At 6.93%, the second purchase costs thousands.
Here's the check this week. Pull up your current car loan, or the quote on the car you're eyeing. Write down the rate, the months left and the balance. Then call your credit union or bank and ask what they'd offer for the same term. If the gap is a point or more, a refinance or a pre-approval is worth the hour. A loan you shop is a loan you chose. You compare the fare before you board, and the rate before you sign. Bring the numbers to your next review and we'll look at where the payment sits in the budget.