In recent years, the market for new and used cars has taken a sharp left turn.
Prices have skyrocketed, supply has been erratic, and with interest rates rising, finding good deals has become a bit like searching for your destination without a map. The average price of a new car hovers at around $48,000, an increase of 33% over the last five years.
So far, the auto workers strike at Ford Motor Co.
F,
General Motors Co.
GM,
and Stellantis NV
STLA,
has yet to impact prices and overall availability, but that could change over time.
But where to begin?
Take your time. Those stuck having to buy a car in a day or two are in the least advantageous position, so act now if you think your car will soon need replacing.
“The best way to avoid getting ripped off is to do the math ahead of time to really know what you can afford to spend and how best to get there,” says Tom McParland, founder of AutoMatch Consulting, a service which helps people find the best deals on cars.
If your car has broken down and you need a replacement tomorrow, consider renting a car for a week, if you are able, to buy some time.
“If you have an immediate need, your options narrow,” says David Bennett, senior automotive manager for AAA.
So here are the five steps to take to ensure you get the car you want at the best price:
1. Get pre-approved for a loan
Nearly 85% of all auto purchases in the U.S. are financed, so the rate you get on your loan can be the most pivotal part of the puzzle. The average interest rate for a new-car loan was 6.63% in the second half of 2023 and 11.38% for a used-car loan, according to Experian’s
EXPGF,
latest State of the Automotive Finance Market.
Go to your local bank, credit union or other lender and get a pre-approval for your loan. This will give you a baseline for what you can actually afford and will give you significant bargaining power when you actually show up at the dealer.
“Taking that simple step will help you understand your finances right at the start,” Bennett says. “It also doesn’t leave you at the mercy of what the dealer can offer, and if the dealer can beat what you already have, then you’ve already saved money.”
Having a loan pre-approval will also save you from some of the practices that unscrupulous dealers engage in, like offering a rate that is higher than what you might actually qualify for from the dealer’s lending partner, and pocketing the difference. While that may sound shady, it is actually perfectly legal, McParland says.
2. Choose a car based on your needs
An informed consumer usually ends up being the most satisfied consumer.
Make a list of wants versus your needs. Do you like to golf and need extra cargo space for your clubs? Do you need space for a third car seat? Rails on the roof? These questions will help narrow down your choice. It will also quickly show you whether a specific make and model will suit your lifestyle.
Sites like Edmunds and Kelley Blue Book are also powerful tools in determining price-data for cars and help buyers comparison shop before ever setting foot in a dealership.
Get up to speed on your local market. Look online to see what is available from dealers in your area. It sometimes helps to expand your search area a little further as driving even an extra 30 minutes can help save you some money. If you are looking for a very specific kind of car, you may need to go even further to get the best deal.
Take gas prices into account. Lower prices can spike demand for things like pickup trucks. Higher prices and electric vehicles may become harder to get.
Flexibility will go a long way. Are you open to different colors and trims? Are you willing to drive to a dealer further away for a better price? Can you wait a bit longer for delivery of a less readily available model? All of that can help bring prices down.
3. Start reaching out to dealers
Only after you’ve worked out your financing picture and what’s out there, should you begin reaching out to dealers.
But don’t start doing test drives just yet.
If you’ve seen some cars and prices that look right to you, begin by emailing, phoning or texting with the dealer.
How they respond will give you a good sense of whether they are someone you want to be dealing with. If they resist engaging and push you to come to the dealership to answer any questions, that could be a red flag.
“That’s code for, ‘we are going to try to hose you and we need you here on our turf to make that happen.’” McParland says.
4. Get everything in writing
Ask dealers to send you an itemized breakdown of the out-the-door price for the vehicle. While the sticker price may be comparable to other places, they may tack on additional fees which can make it a less appealing deal. Having the final price in writing will make it easier to compare with prices being offered by other dealers.
Bottom line: do as much of the negotiating and paperwork as possible before even going to the dealership.
When you have zeroed in on a few cars, call your insurance company and find out how much more it will cost to insure your top choices. The difference in the insurance cost between two models could be significant.
Understand the terms of any loan you are considering taking. Are there penalties for paying early? Can the rate change during the life of the loan? How long before you start paying for equity in the vehicle?
“You really need to fully understand what you are signing,” Bennett says.
5. Keep your negotiations separate
Once you have pre-approval secured for your loan, plus a good idea of your preferred make and model, it’s time to head to the dealer.
Test-driving a vehicle will give you a real sense of whether the car you like actually fits your needs.
So now it’s time to sign the papers, right? Almost. You are now entering the final stage: but buying a car, taking out a loan and trading in another vehicle are three separate negotiations.
“Dealers will try to bring these three things together into one conversation,” Bennett says.
In reality, you can usually get a better price selling a used car yourself, but it is significantly more work and presents its own issues, like how best to transfer title or even how to safely meet a prospective buyer and let them test drive the car.
Don’t be too open about the amount you are willing to spend.
“If you give the dealer a target figure, they will jigger the calculation to get you to that price, but that won’t always result in the best deal,” McParland says.
In some cases, you may end up with a longer-term loan to bring the monthly price down, but end up spending more over time. Or you could end up buying a car with features you don’t want or need because the dealer is trying to clear a model from the lot. These are not necessarily bad things, but a buyer should be sure to understand this before signing.
Once you have taken all these steps, and feel comfortable with the car, you can sign the papers and drive it off the lot. The extra time spent doing the legwork will be well worth it.
“Patience is the key,” Bennett says.
This story originally appeared on Marketwatch
