With high inflation and the economy in shambles right now, it's become incredibly important for people looking to buy a car to get the best financing possible, since every penny counts.

However, appropriate financing in our current climate may be difficult to acquire and for an unexpected reason: chip shortages.
 

How Important Are Computer Chips When It Comes to Car?

How important are computer chips? Well, as it would turn out, very.

The type of chips used in most vehicle types are microchips, which are transistors that are barely visible to the untrained eye, and they're specifically known as semiconductors. They play a vital role in the function of electronics by controlling the flow of electrons from one section of technology to another.

Without these semiconductors, only the simplest types of electrical technology in your car would actually function. Common components of vehicles that most people don't think about which require advanced chips include things like GPS, climate controls, seat heating, airbags, radios, rearview cameras, cruise control, and speedometers.

So, in short, unless you're looking to get your hands on a 1920s or soviet-era vehicle, it's going to have semiconductors in it and a lot of them.
 

Why Is There A Chip Shortage?

Unsurprisingly, the reason why there's currently a global semiconductor shortage has to do with the COVID-19 pandemic.

The pandemic messed up supply chains pretty badly and the overall economic slowdown convinced everyone in the auto industry that nobody would be buying cars for the next couple of years, so a reduction in the number of semiconductors ordered became quite common.

Semiconductor manufacturers subsequently scaled down production and a decrease in the number of chips became available globally.

However, card demand didn't really decrease, or at least not that much, so we're all stuck in a situation where new vehicles can't be completely manufactured in a timely manner, leading to a vehicle shortage.

Unfortunately, there isn't much that can be done about the problem for at least the next several years due to the prohibitive cost of ramping up semiconductor production and building new production facilities.
 

How Is This Situation Affecting Car Financing?

The chronic lack of semiconductors means that new cars aren't going on the market very fast, leading to a significant amount of strain on the automotive market.

This situation obviously impacts the number of new cars available, but the shortage of new vehicles is also subsequently making it more expensive to buy used, with the cost of used cars increasing anywhere from 15% to 20% on average. As inflation is burning a whole in people's wallets, buying used cars is going to be much more popular in the near future, making costs go up even more.

How all of this impacts financial options is that finding ways to pay for cars is going to become more difficult overall, potentially even pricing many people out of the market.

To start off with, pretty much any vehicle you can get your hands on is going to cost more than it would under normal circumstances. This is going to make it more difficult to get approved for a loan, since lenders are going to be putting more money on the line than they would like. If your credit isn't in tip-top shape, be prepared for some heavy rejection.

Additionally, there is the issue of inflation. From a lender's perspective, inflation is absolutely terrible for their bottom line as it effectively decreases their profits, so they're likely to charge some pretty high rates to keep up with it or offer a variable rate loan option. Also, the Federal Reserve is likely to raise interest rates soon to prevent inflation from ballooning out of control, which is going to make any loans you take out more expensive by default.

So, overall, vehicles are going to be more expensive, getting loans for them will be more difficult, and the loans themselves are going to cost more.
 

Looking for A Vehicle

Vehicles are incredibly important tools to have in your life, especially if you live somewhere that isn't heavily urbanized. However, vehicles are expensive and they're likely to only become more so in the future.