Lower gas prices and rising sales of larger vehicles have resulted in slower sales of compact cars.

In a recent article by Philip Reed of NerdWallet, he pointed to data from Edmunds.com that showed falling prices in the compact car segment. And why are those prices falling? Because, with lower gas prices, consumers are gravitating towards larger vehicles, leaving dealership lots full of unsold small cars. And this has resulted in manufacturers cutting down on production as well as offering more incentives (such as low-interest financing and cash rebates) in order to boost sales.

According to TrueCar.com Industry Insights Analyst Patrick Min, you can save an average of $1,000 on a small car due to manufacturer rebates and dealer discounts. And Karl Brauer, Senior Director of Insights for Kelley Blue Book stated that "the average quality across this segment has never been higher." All of this translates into savings for car buyers without needing to sacrifice quality.

Why Go Small?

compact car

Because of lower gas prices, people are buying large vehicles. However, they are not seeing the big picture. Some experts have forecast that by the end of 2016, gas prices could be almost double of what they are now. According to a report from financial firm Raymond James, oil, which is currently priced at around $35 per barrel, will rise past $60 per barrel by the end of 2016.

What that means is that consumers who have just opted to finance larger, more expensive SUVs because of the current gas prices could be running into financial trouble in only a couple years' time. To give you an idea of the kind of financial trouble, the NerdWallet article broke down the current difference between fuel costs of a 2016 Chevy Tahoe and a 2016 Honda Civic. The Tahoe came in with an average of $1,450 per year in fuel compared to the Civic, which topped out at a measly $750.

And if lower fuel costs don't concern you, take a look at the other areas how SUV ownership can affect you, from NerdWallet:

  • Yearly costs
    "The second-year costs of an SUV (such as registration, insurance, maintenance, and the drop in your vehicle’s value because of its age and condition, known as depreciation) total $9,000 compared with $6,000 for a compact car of the same age, according to Edmunds."
  • Ease of driving and parking
    "A compact’s smaller footprint makes navigating congested streets and tight parking spaces easier in increasingly crowded cities."
  • Lower emissions
    "Tailpipe emissions are relative to engine size — a smaller engine means less carbon dioxide and other greenhouse gas emissions. Check emissions on FuelEconomy.gov."

The bottom line is, unless you need a large vehicle for your job or family, a small, compact car is your best chance to keep your vehicle costs low. And for car buyers with bad credit, this is even more important to keep in mind.

The Right Choice for You

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