What You Should Know to Save Money
Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.
Car prices are at an all time high, and consumers are feeling the pinch. According to Kelley Blue Book, in June 2021, the average transaction price for a brand new car was over $42,000. Used car prices also reached a record high average of over $25,000 in June 2021, paired with an average of 68,000 miles on the vehicle, according to Cox Automotive.
So what’s causing skyrocketing prices? A perfect storm of multiple factors, including a semiconductor (chip) shortage, inability from car manufacturers to meet demand, low interest rates from lenders along with high credit scores and extra savings from consumers. This has sent Americans running to car dealerships, and the once negotiable purchase of a vehicle has transformed into paying over sticker price and waitlists.
If you are in the market for a vehicle, it can feel like you have very little power. While experts are depicting a picture of being at the mercy of your local car dealer, there are several ways you can approach the car-buying process without paying a premium.
The car market is at its peak, and Pat Ryan, CEO of CoPilot, a consumer-centric car buying app, recommends all buyers to “be patient.”
Since the beginning of the pandemic in March 2020, the Federal Reserve Consumer Price Index on new and used vehicles has shot up 30%. However, affordable days may be on the horizon.
Ryan told Select that we are going to possibly see a “seasonal slowdown” in the fourth quarter, but we are still “six to 12 months away from a full correction.”
The U.S. Bureau of Labor Statistics released their July 2021 Consumer Price Index findings on Wednesday, and new and used vehicle price increases both saw a significant slowdown. From June to July, prices for new and used cars rose 1.7 and 0.2 percent, respectively. The May to June 2021 price increase for new and used vehicles was 2.0 and 10.5 percent, respectively.
While this recent data could indicate the ‘tipping point’ of car prices, Ryan’s best advice is if you can wait a few months, that is the best option for all consumers.
Be flexible with your choice of vehicle
Ryan also suggests if your ultimate goal is to save money on your purchase, be flexible with the car you purchase.
If you are in the market for a “lower priced, new car” such as a Honda or Toyota, you could find yourself with few options, Ryan said.
He did note that German vehicles, Buicks and RAM trucks are recovering in their supply. According to CoPilot, as of July 2021, near-new trucks is the segment recovering the quickest in terms of supply. Coupes, sedans and crossovers are also replenishing quickly. According to the law of supply and demand, a higher supply could lead to lower prices for these types of vehicles in the near future.
If you are flexible with the type of vehicle and its accompanying features, among other details, you have a better chance of saving money and avoiding being stuck on a waitlist.
Search for cars that are collecting dust
If you are planning on buying a vehicle relatively soon, try searching for cars that are ‘collecting dust’ — meaning they have been listed online for an extended period of time.
On several used car websites, including AutoTempest, you are able to filter by “oldest listing”. By focusing on cars that have been listed longer, dealerships or private sellers may be more flexible in their asking price.
Use your credit score to your advantage
As we are all accustomed to hearing about sales and deals from your local dealership, that is not the case now. “Dealership incentives are low”, Ryan told Select. Those incentives being discounts on a vehicle’s purchase price and low-interest lending options.
Mark Reyes, CFP and financial advice manager at Albert, reiterated the importance of preparing yourself financially before buying a car. “Don’t rely only on the dealer to get a loan. You may be able to get a lower interest rate and more favorable terms from your local credit union or bank,” he said.
Having a good credit score and credit history can help you get favorable terms on your auto loan. Using a credit monitoring service can help you keep track of you score, and some even offer you to see your FICO Auto Score.
It’s time to upgrade, if you need it
If you have a car that is worth trading in, Ryan says to heavily consider swapping your current vehicle for an upgrade. “There has never been a better time to sell your car,” he said. And as dealers are struggling to keep supply on their lot, they are willing to pay more for your trade in.
If you need (not want) to upgrade your vehicle, Reyes suggests to “keep the price of your vehicle to no more than 30% of your annual salary while keeping the monthly payments to no more than 10% of your monthly salary.”
Buying a car right now is not only a difficult process, but an expensive one. If at all possible, it is best to hold off on purchasing a car, and maybe try the carless lifestyle if you work from home.
If you need to buy a car, consider all of your options outside of your local car dealership, including: an online listing platform like Facebook Marketplace or Craigslist where local people list their cars for free, or an online ecommerce platform like Carvana or Vroom where your car is delivered to your door.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.