If you're thinking about buying a car, when's the best time? Do you buy new or used? And how to get the right price and not get taken for a ride?
Here's an overview of the car-buying environment and how to successfully navigate it.
Auto Inventory is Up for New Cars
A recent Cox Automotive analysis finds that many dealerships have boosted their inventory to meet demand. To accommodate new arrivals, dealers are offering discounts on surplus vehicles. Unfortunately, the used car market supply has yet to keep up with demand.
Prices are Still Higher
Vehicle prices dropped by 2.4% at the end of 2023. However, these prices are significantly higher than the pre-pandemic average, underscoring the impact of recent economic shifts. In addition, with electric vehicle sales not meeting expectations and a growing surplus, you may be able to snag a deal in 2024.
Financing Costs
According to Bankrate, rates on a five-year new car loan will reach an average of 7.0% APR and 7.5% for a four-year used car loan. Many dealerships are offering lower rates to get rid of excess inventory, so it pays to shop around.
Four Ways to Pay Less for Your Next Vehicle
You can successfully buy a vehicle in today's market without stressing your budget. Here's how:
1. Calculate Affordability
Figure out how much you can afford with the help of a car loan calculator. Consider price, interest rate, down payment, trade-in value and potential discounts. A vehicle that seems out of reach might be within your budget after these factors are taken into account.
2. Raise Your Credit Score
A higher credit score spells lower loan rates. Improve your score by:
- Paying bills on time: Get caught up on any past-due accounts and set up automatic bill pay to avoid making late payments.
- Managing debt: The amount you owe on credit cards and loans, known as your credit utilization ratio, affects your score. Aim to use less than 30% of your credit limit.
- Enrolling in Experian Boost™: This free service lets you add payment histories for rent, utilities and well-known service providers to your credit file, potentially resulting in an immediate credit score increase.
3. Apply for Incentive Programs
Research incentives for electric, plug-in hybrid and fuel cell vehicles. In addition to visiting auto manufacturer websites, search for state and federal programs that offer cash back rebates on select new or pre-owned vehicles. For example, the Bay Area Air Quality Management District – Clean Cars for All offers qualified applicants a maximum incentive of $9,500 on eligible purchases.
Additional Resources:
4. Contact Private Sellers
You could buy a more affordable used vehicle from a private seller using the money you saved for a down payment or obtained through financing. For instance, let's say you have $5,000 set aside for a car. Instead of using it for the down payment on a new car, that amount might cover the entire cost of a used vehicle from a private seller.
Although it may not be your ideal car, it might fulfill your immediate transportation needs by being reliable and fuel-efficient.
When considering buying from a private seller or any vehicle sold without a warranty, it's important to anticipate repair costs, too. For example, you might have to invest in new tires or brake pads, which could cost you an additional $500 to $1,000.
A pre-purchase inspection is crucial. This inspection, which might cost around $100 to $200, could reveal that the vehicle needs a new timing belt, which could be an expensive repair. However, knowing this upfront allows you to make an informed decision or negotiate the sale price.