This blog post is excerpted and adapted from one of the free Delta Community Financial Education Center workshops, Car Buying Confidence, which is being presented this month. Please visit the Financial Education Center's Events & Seminars page to register for its monthly, no-cost webinars with practical advice on managing personal finances.
Buying a car can be overwhelming and stressful with all the decisions to make: do I get new or used; buy or lease; what are the financing options and available deals (not to mention what color to pick)? Following are some tips for a successful car buying experience in the current buying environment, including how to research and budget for new and used cars and manage the challenges of a high-buyer demand market. Historically, there have been many good times to buy a car during the year, based on dealerships trying to make monthly quotas, offering year-end sales events, and the regular arrival of new models coming out, with dealers wanting to get rid of outgoing models. December has often been a great time to find savings on a vehicle purchase as dealers don’t want to carry older models in their inventory into the financial new year, so it’s still worth checking out deals at the end of year.
The reality of buying a car in the current market
Since the beginning of the COVID-19 pandemic, there have been shortages and higher prices for many common household items, such as toilet paper, hand sanitizer, personal computers, other electronics, and, unfortunately, cars.
These shortages have resulted in what can be a frustrating market for car buyers due to a variety of factors affecting vehicle availability, the facts of the current market are that:
- Continued new vehicle shortage(s) has made finding the preferred models difficult, but not impossible
- New cars are in short supply due to shortages in essential processor chips, along with other vehicle component supply chain delays
- Used car demand is strong and prices have increased dramatically as there is now a seller’s market
- Many automobile dealers now offer online sales and home delivery to accelerate purchase
For patient consumers, there’s likely a car out there that’s acceptable to them, even if it’s not exactly what they want—buyers should be thorough in their research and be ready to buy quickly.
Tips for buying a car now
How do you manage buying a car in what has become a seller’s market, where there are often more advantages for the car seller than the buyer? Here are a few tips to think about:
- Prearrange financing. Figure out your budget and get financing based on what you can afford to pay monthly, and as a down payment. It’s always a good idea to get financing set up through your bank or credit union before going to the dealership to look at cars because it gives you a baseline against which you can compare the terms of dealer financing, which may or may not be a good deal. But it’s especially important to prearrange financing now, when new cars are in such short supply. If a dealer has a car you like today, it’s probably a very good idea to purchase immediately before someone else grabs it.
- See what’s available locally. If you’re shopping for a new car, dealers near you may not have exactly what you’re looking for. Instead of going to the dealership to see what it has, look on its website or call first. You may need to search several dealers to find something that’s close to what you’re looking for.
- Always call and verify the car you want is still available; be very cautious of car dealers that say the car is there when it isn’t, then ask you back to the dealership for a “bait and switch“ maneuver—and then pressure you into buying another model that you don’t really want.
- Expand your geographic search. If dealers where you live don’t have the car you want, try sellers outside your area. Be cautious about casting your net too wide, though. You want to be able to go see the car and test drive it before signing a sales or leasing contract—especially for used cars—and with the market being as hot as it is right now, the car you’re looking at might not be there if you have to travel too far to get to it.
- Do your research. Whether buying new or used, consult the websites of independent car testing organizations for their vehicle ratings, looking at reliability, owner satisfaction, and safety. You want a short list of contenders to test-drive, and even more than before, you want a good understanding of the various trim versions and features because you might not find your desired configuration at the dealership. Print material from these testing sites and the manufacturer websites so that you have detailed data with you.
- Buy something reliable. If you’re forced to pay more than usual for a new car, your best bet is probably going to be to keep it for the long haul. Look at car dependability and defect reviews and ratings to make sure you buy something reliable that won’t give you problems later on.
- Be realistic and compromise to a degree. Even if the dealer has the model you want, the car might not have some of the features you were looking for. Decide which options are really important and whether not having all of them means you should consider a different car. As for recent prices, large pickup trucks and sport utility vehicle (SUVs) have seen the biggest increases, while smaller cars, sedans, hatchbacks, and front-wheel drive SUVs have tended to have smaller price hikes.
- Don’t borrow too much, and be careful about paying above the manufacturer’s suggested retail price. If you’re paying 18 percent over the manufacturer’s suggested retail price (MSRP) for a current model, popular SUV today, for example, consider what it will be worth when you trade it in. Specifically, if you’re paying more than MSRP today, consider how that might affect your future trade-in. For example, if you buy an SUV that depreciates $15,000 off the sticker price in three years, but you paid $10,000 over MSRP this year for it, that means it cost you $25,000 to own it for that short period. Cars are depreciating assets—their value decreases over time—so overpaying for a new car is likely to compound your long-term losses.
This same advice goes for a used car that costs almost as much at two years old as it did when it was new. You don’t want to get a loan on a car that’s going to lose a lot of value over the next couple of years, or you may end up “underwater” on the loan; that means that you will ultimately owe more on the loan than the car is worth for an extended period.
Other thoughts on cars
For more helpful financial information, remember to check out the free Delta Community Financial Education Center webinars on a range of money-related topics. You can visit the Financial Education Center's Events & Seminars page to register for its no-cost, on-demand webinars.
The Credit Union’s blog has more information that could be educational and helpful:
The importance of good BALANCE
BALANCE is a financial education and counseling organization that offers free services to Delta Community members. Some of its services include, credit report reviews, debt management, budgeting and money management and home buying.
Visit their website to learn about their education and assistance programs. Members can also speak with certified credit and housing counselors to get personalized guidance. Note that the services offered through BALANCE are separate and distinct from any business conducted with Delta Community and are not guaranteed by, nor are they obligations of, the Credit Union.