If you’ve spent the past few months dreaming of a new ride in your driveway, you’re probably looking at models, comparing deals and thinking about how to buy a car. Right now, though, one of the best car buying tips is pretty simple: Wait.
The COVID-19 pandemic has created challenges for the auto industry. According to Charlie Chesbrough, senior economist at Cox Automotive, the auto marketplace is “very thin on product availability, and shoppers may be unable to get the color or trim they want.”
And if you aren’t looking for a new model, you’re still in for some sticker shock. Data from Edmunds shows that the average listing price for a used vehicle increased by more than $700 between June and July.
There’s good news, though. The end of the year is traditionally a great time to buy a car, and the model year rollover — the period when manufacturers begin adding next year’s models to dealer lots — should begin to impact the industry soon. Now is the time to do your homework and plan for this big purchase.
When you’re ready, follow these 12 tips for buying a new car.
1. Figure out what you can afford
You may have your heart set on a specific car, but you won’t be able to take it home unless you can afford it.
A good rule of thumb is to spend no more than 25 percent of your monthly household income on all the cars in your household. This figure should include your monthly car loan payments and all the other vehicle costs, including fuel and car insurance. For the monthly payment alone, you should aim for 15 percent, according to Ron Montoya, senior consumer advice editor at Edmunds.
2. Define your meaning of ‘new’
The car may be new to you, but that doesn’t mean it has to have zero miles and that fresh new car smell.
“The used cars will obviously be a little less expensive, but you have to be mindful of the condition levels,” Montoya says. “Whereas a new car, they’re in perfect condition, but they will cost more.”
Certified pre-owned options can be a great route toward a new car and a cheaper bill, too. These vehicles have to meet a stamp of approval from the manufacturer – the “certified” meaning – so you will get the reassurance of a warranty that you might not get if you have been thinking about how to buy a car from a private seller. The savings can be substantial. According to Edmunds, the average price of a certified pre-owned vehicle is 33 percent less than buying the same model new. For example, buying a certified pre-owned 2017 Toyota Camry would cost you around $17,000, while a new 2020 Toyota Camry will cost more than $27,000.
3. Decide whether you want to buy or lease
Do you want to drive your new the car as long as the wheels can stay on? If so, buying is the way to go.
However, if you want a new car every three years, consider leasing. Leasing means you might get a more upscale car for your money, but you won’t own the car outright and will need to be careful about the lease terms to avoid hefty penalties. Consider the vehicles on your radar, and weigh the pros and cons of buying and leasing one of them.
4. Narrow your choices
After you’ve set your budget and determined the right type of ownership for your driving habits, start researching the vehicles that have caught your eye.
Visit automaker websites and independent auto information sites to assess the features that are important to you. Note MSRPs (manufacturer’s suggested retail prices (MSRPs)) and invoice prices. Check local inventory listings to see what is available in your area.
5. Find out what it will actually cost
This new car isn’t going to just sit in your driveway. You’ll be cruising around, and those miles mean more ownership expenses including gas, insurance, repairs and maintenance. An auto research website like Edmunds or Kelley Blue Book can provide a general overview of ownership costs for your area, but these numbers will vary depending on your personal situation.
For better accuracy, do your own calculation for fuel based on the number of miles you drive annually, and get an auto insurance quote on the cars you are considering that would apply to the drivers in your household. Make sure you give the insurance agent the exact model, including trim level, engine and sometimes certain add-on options, to get an accurate quote.
6. Lock in your financing — (before you visit the dealer)
Dealers don’t just want to sell you a car — they want to coordinate the car loan, too. Dealers typically receive a flat fee or a commission on the auto loans they facilitate, regardless of whether the loan is from the manufacturer or a local lender.
Instead of having your dealer do the work, compare auto loan rates at banks and credit unions, and get a preapproved loan offer before heading to the dealership. Going in with that preapproved offer is “always a good idea,” Montoya says, “just to see what you can get approved for and know what you can afford and also to be able to compare the interest rates.”
7. Talk to the dealer about financing
Getting preapproved at a bank or credit union doesn’t mean you have to take that deal, though. And if you have excellent credit, a dealer may be willing to give you a top-notch deal right now.
When the COVID-19 pandemic disrupted the auto market, manufacturers started offering a lot of 0 percent financing deals. In June, nearly 20 percent of new financed deals were those offers, according to Edmunds. While manufacturers are beginning to pull back on those deals, they are still out there.
However, it’s important to note that even 0 interest might not be the best deal. You may be better off taking an automaker’s cash rebate and getting financing on your own at a bank or credit union.
To figure out what makes sense for your finances, first identify the best interest rate you can get and then compare using Bankrate’s car rebate vs. low-interest calculator.
8. Get all the pricing information
The research you did on independent automotive websites should have included the invoice price (for new cars) or wholesale price (for used cars), as well as the MSRP (for new) or the dealer’s asking price (for used).
While invoice pricing on third-party sites isn’t completely accurate, it’s a good indicator of what the dealer paid for the car. Aim to reach an agreement on the sale price that is close to that number before any discounts are applied, and keep in mind that the dealer needs to make at least a few hundred dollars’ profit to cover the operating costs of running the dealership.
Ask the dealer for a detailed price quote. “Whenever you ask for a price quote for a vehicle, you want to ask for a breakdown of all the fees so that you can see exactly what’s on there,” Montoya says. “And if something is unfamiliar to you, feel free to ask about it. The typical stuff you’re going to pay for is sales tax, registration fees and a documentation fee which is what the dealership charges to process the paperwork.”
9. Research all possible discounts in advance
If the dealership is promoting any cash-back deals, these incentives should again be deducted after you negotiate the price.
Remember, many automakers offer discounts to students, military members and even members of certain credit unions. These discounts can be stacked and combined with the cash-back rebates on the model. Check automakers’ websites for these incentives.
10. Make your calendar your bank account’s best friend
Be sure to consider the time of the year before buying a car.
Dealerships typically have their big sales events, typically around spring, fall and the end of the year. That’s when you’ll see an influx of leased cars returned.
If you’re looking for a used or certified pre-owned option, these are some of the best times to buy a car. The holidays can be a perfect time to give yourself the gift of a new car, too.
11. Take it slow with your test drive
Most car shoppers keep their new cars for around six years, so take your time with the test drive. Make sure you really love it, and that you’ll want to spend more than 11,000 miles in it each year (the average number of miles each American drives in a year, according to AAA).
Don’t hesitate to ask for more time behind the wheel to ensure you like the driving experience. Spend time in the car while it’s parked to adjust the seats, experiment with the controls and determine whether passengers would be comfortable and your regular cargo would fit well.
12. Before you drive away, drive a hard bargain
When you are ready to make a purchase, forget about trading in your old car if that’s part of your plan. You’ll fare better if you negotiate the sale price of your new car and the trade-in value of your old car separately. Make sure you have already researched your current car’s value online so you’ll know whether you are being offered a fair price when the trade-in is discussed.
Once it’s time to sit down and talk pricing, come prepared with the research you’ve done. “I like to negotiate with facts,” Montoya says. See if other dealerships are offering better deals on your vehicle and seek a price match from your salesperson. You should also be prepared to say “no” to those nice-to-have extras that you might not actually need.
Before you sign the final contract, go over all of the details carefully. Make sure that you aren’t paying any unnecessary fees, and double check that everything you negotiated verbally is also spelled out in writing.