As a consumer, buying a car is one of the most important decisions you’ll ever make, and with good reason: the consequences of an auto purchase — how it will meet your needs as well as the long-term financial considerations — are enormous. In fact, buying a car is often the second biggest purchase you’ll make besides buying a home. But as we continue to grapple with the coronavirus pandemic, the shift it’s brought to our personal and collective lives has also extended to the auto industry. A global chip shortage has put a strain on new car production, creating a demand in the used car market and making this a time like no other to buy a car. New car lots are seeing one-third of the inventory from two years ago. Both new and used cars are seeing record increases in prices. But just as you’ve adjusted through this pandemic to everything else in life, so too can you adjust to this current reality in car buying.
So, what’s the first step?
Before You Start Shopping
Assess Your Needs and Narrow it Down
Before you begin shopping for a new or used car, you should narrow your needs and wants down to a concrete list. Among the things to consider are the following:
- How much can you afford? This is chief on the list of things to consider when buying a car. What do you have earmarked in your budget? This includes not only the cost of the vehicle, but the related costs of insurance, routine maintenance, registration, and taxes.
- What will be the vehicle’s purpose? Will it be used primarily for work or pleasure? The average American drives 13,500 miles per year. However, this has been impacted by the pandemic and may cause a shift in how often you drive.
- What type of vehicle are you considering? A sedan, SUV, minivan, or truck? This may be more important now than prior to the pandemic. Certain body types are costing more rather than less. Do you prefer a foreign vehicle or a domestic one? Are you looking for luxury or a no frills, practical vehicle?
- What features interest you? What are your thoughts on navigation systems, Bluetooth connectivity, remote start, blind spot monitoring, brake assist, sunroofs, and other features? How vital is safety to you? Are the top rated vehicles in safety the most important? Computer chips enable many of the electronic and safety features we want and enjoy in our cars. Knowing what you want (or don’t need) will guide your decision in this strained market.
- How important is energy efficiency to you? Have you considered going green and exploring options in electric or hybrid vehicles? The U.S. Department of Energy provides information on alternative fuel vehicles as well as data on fuel-efficient cars so consumers can make an informed decision.
Know Your Options
Should I buy a new or used car?
Once you have an idea of what you’re looking for in a vehicle and what you can afford to spend according to your budget, the next consideration is whether to buy a brand-new vehicle or a used one. This choice will be affected by the current market brought on by the chip shortage. In some instances, brand-new cars are on par in price with used car models, offsetting the biggest difference historically between the two types of cars. But even in this climate, new cars still cost more and come with the latest in technology. New cars also come with quicker depreciation, though it’s unclear how the market will impact this in the future. As enticing as it is to purchase a brand-new car, it may not be the best option for your needs.
As the shortage in new car inventory carries on, car buyers are heading to pre-owned lots. Vehicles with low mileage that are within a few years old are selling for close to what owners originally paid, making the cost of purchasing a used vehicle at this time a real factor. Even older models with high mileages are seeing a rise in value. Many of this depends on the body type: used SUVs and pick-up trucks appear to be higher priced than sedans. Still, many may find that while the price on these vehicles has increased, pre-owned vehicles still have benefits. Insurance rates are lower compared to a new car, and a used vehicle also has a record of performance. Buyers can look to sites such as Consumer Reports for the ratings and reliability of a particular year, make, and model.
If you’re seriously interested in a used vehicle, it’s recommended that you get an inspection prior to purchase. With a used vehicle, there will be conceivably more repairs and an overall shorter life compared to a new car.
Should I pay cash, finance, or lease?
When deciding how a vehicle will be purchased, car buyers have a few choices. You can pay upfront in cash, finance, or lease a car. If you’re able to, paying upfront for a vehicle in cash is the least expensive option in the long run because you’ll avoid paying interest on a loan.
However, financing is a very popular option. Most Americans purchase their vehicles, whether new or used, through auto loans. Though you’ll have to pay interest, financing allows the buyer to pay for a vehicle over time with affordable payments as opposed to one lump sum cash payment. Financing a vehicle is also an excellent way to build credit, which could be a precursor to buying a home. You’ll need to carefully consider all of the details of an auto loan before committing to one.
Finally, leasing is also a choice for those looking for a vehicle. Unlike financing or purchasing a vehicle with cash, you won’t own the vehicle and are in effect renting it for a set term. This may be a good choice if you don’t find what you want in this currently strained auto market. Leasing gives you the luxury of driving a brand-new car with a low monthly payment. The cost of routine maintenance is also something lessees don’t pay. But before you sign on the dotted line, make sure leasing is right for you.
Do your Homework
Once you’ve decided how you’ll purchase your vehicle and what you’re looking for in a car, you’ll need to do some further research to make the best possible purchase. This can’t be underscored enough as auto prices are at record highs. It’s a dealer’s market, so you may find they may not be willing to negotiate. Still, preparation is the key to buying a car.
If you’re choosing to finance or lease your vehicle, it’s important to know what your credit score is so that you know where you stand in terms of getting the best rate possible and what leverage you have in the car buying process. One way to do this is through AnnualCreditReport, which allows you to pull your credit score from the three main credit bureaus for free once every year.
Next, you should consider a preapproval for financing or leasing. Lending can be done through a car dealership, but preapproval is recommended by many. This can be done through a local bank, credit union, or online lender. It’s likely you’ll get a better rate through preapproval, but financing through a dealership is still an option.
Now is also the time to consider what your down payment will look like. The higher the down payment, the lower the total cost of the vehicle to you. Although a good rule of thumb is 20 percent of the purchase price, many car buyers pay less than this. If you plan to trade in a vehicle to reduce the total cost of the purchase of a car or sell it privately, now is also the time to think about that. It may be the leverage you need in this competitive market.
All of these factors combined will allow you to make an informed decision and negotiate as best you can on the car you want.
Now that you’ve done all your research and determined your car buying needs, it’s time to shop, and there are many ways to do it:
- Look online. Check out car buying sites like CarGurus, Edmunds, and TrueCar and inventory from nearby dealerships. If you’re interested in buying from a private seller, check out the online classifieds as well.
- Visit dealerships. Check out what they have to offer and test drive multiple cars.
- Find out the fair market price for your desired car. Look at the manufacturer’s suggested retail price (MSRP), get quotes from several dealers, and consider the information you gained from car sites.
- Talk to family and friends. Gather information and ask for recommendations.
- Search far and wide. Consider looking for deals from far-away dealerships and discounts offered by organizations or employers. It may be worth it considering the current car buying market.
Make Sure You Have Auto Insurance
You’ll need to make sure you have auto insurance before you can drive off the lot in your new car. Insurance companies can provide a quote on an expected premium if you supply them with information about a potential vehicle, specifically the vehicle identification number, or VIN. In addition, you should inquire about any eligible discounts, including good driver, multiple policy, and good student discounts.
Choose the Right Time to Buy a Car
Though you may need to buy a car before the ideal time to purchase one, there are periods during the week, day, or season that may be beneficial to you as a consumer. The likelihood of saving more and possibly getting the best price at a dealership tends to happen earlier in the week, specifically on Mondays. The end of the month and the end of the year are also great times to purchase, mainly due to the quotas many salespersons must meet. Holidays, such as Memorial Day, the Fourth of July, and Black Friday also offer the chance to get a good deal.
If you find that the current auto market, in the midst of the coronavirus pandemic, is not the best time to buy a car, consider waiting a year to re-evaluate the market. Economists argue that it may take that long, at minimum, before we see a change.
And while there are many factors to consider when buying a car, particularly in this market, one thing is for certain: you should be happy with your purchase. Whether you’re insured with us already or looking for a new plan, get a quote with Elephant when you’re buying a car.