Steer into car-buying discounts
Buying a car can drive anyone crazy under normal circumstances. The entire process is intimidating. The transaction can be so adversarial in nature that some of us would prefer to cut the lawn with hair clippers than wheel and deal with a car salesperson.
These days, the endeavor is even more stressful.
There aren’t a whole lot of cars out there as supply chain snarls are still reverberating through the auto industry. Production of new cars plummeted early on in the pandemic and shoppers were pushed to the used car market. In turn, prices soared because demand was so high. Prices have eased, but not significantly. Data from auto research site Edmunds shows that used-vehicle prices average around $26,000, down from their peak of $31,000 in 2022 but a far cry from the $17,000 consumers paid on average for a pre-owned cruiser in 2019.
“Although used pricing has fallen from its peak, demand for used vehicles should continue to be strong as new vehicles have simply grown out of reach for many Americans,” Jessica Caldwell, an analyst at Edmunds noted in a recent survey.
Drivers in the market for a new car should brace for some serious sticker shock. The average cost of a new vehicle is $47,000, a substantial increase from the median price of $35,000 we saw in 2019. On top of that, new cars in a lower price bracket are hard to find. In March, just 0.3 percent of new
vehicles sold were $20,000 or under, compared to 8 percent five years ago.
Inflationary pressures have trickled down to the used car market, too. Rapidly rising interest rates combined with those higher sticker prices are impacting consumers, many of whom are shifting gears and searching for lower priced used vehicles which continues to drive up demand.
“Consumers jumping into the secondhand market for the first time need to keep in mind that interest rates for used vehicles are typically higher than their new counterparts — and it’s critical to think beyond the monthly payment and take total costs into consideration over the life of the auto loan,” says Caldwell.
The average auto loan interest rate across all credit profiles is around 4 percent for new cars and 8.2 percent for used cars, according to data compiled by financial news and market data site MarketWatch.com. Used car drivers are paying, on average, $560 a month. One in six new car owners has a car payment that tops $1,000 a month.
The process (ie: anxiety) of purchasing a car, combined with low inventory, high prices and elevated interest rates can be
difficult to navigate. Consumers can be left confused or cash-less. In a recent MarketWatch.com poll, 30 percent of respondents who recently purchased a new or used vehicle reported paying more per month or having a higher interest rate than they anticipated. There are, however, several ways consumers can keep costs under control when shopping for a new or new-used car. Here are some tips from MarketWatch.com:
Shopping for a new car?
Consider your budget, check your car’s value if you’re trading it in, and prepare for sticker shock. Don’t expect a dealership to embrace a lowball offer, or entice you with incentives or rebates. There are plenty of other buyers out there. Compare prices, test drive the vehicle before you purchase, beware of dealer add-ons, inspect dealer financing options carefully and take your time. It’s a big purchase, you shouldn’t rush it. Also, bear in mind that May is a good time to buy. Vehicles on display during spring auto shows make their way to showroom floors and automakers historically roll out deals near Memorial Day.
In the market for a used car?
Again, you’ll want to set your budget but also check your credit score; it plays a major role in determining your budget and loan interest rate. You’ll need a score of at least 660 to have access to the best annual percentage rates. Research vehicles you are interested in, test drive them and check each one’s vehicle history report from Carfax or AutoCheck. Study your potential car’s value and compare what the seller is asking for with what you’ve learned through your research.
Get pre-qualified. To get an idea of what your future payment could be, consider getting prequalified or pre-approved for a loan. Pre-qualification will give you an estimate of the financing options and it doesn’t affect your credit. Pre-approval gives you official approval for financing after a hard inquiry on your credit.
Comparison shop for loans.
Some financing programs are better than others. Comparing different lenders’ rates will help you to not only find the best loan for your needs but also give you an idea of how certain companies weigh the factors used to determine the terms of an auto loan. In its study, MarketWatch found that Bank of America, Chase and U.S. Bank were the three most popular lenders, respectively.
Put money down: As a rule of thumb, it’s good to put at least 20 percent down on a new vehicle and 10 percent down on a used vehicle. Doing so will reduce your monthly payment, reduce the likelihood that you’ll be upsidedown in the loan later on and lower your loan-to-value ratio.
Don’t be afraid to negotiate: Easier said than done for some of us, but it never hurts to ask especially if you notice any issues or minor flaws. You may be able to knock a few hundred bucks off. The worst a dealer or private seller can say is “no.”