Buying a brand new car comes with the added perks of personalization, the latest technology and the coveted new car smell. But for the past few months, buying new has also carried record high prices. Up 11.9 percent from around this time last year, July’s new car average transaction price (ATP) hit $48,000, reports Kelley Blue Book. So, if buying a new car is in your future, it is wise to consider best practices before setting out to the dealer.
5 ways to save money when buying a new car while costs are high
When it comes to any large purchase the key to saving money is preparation. It is important to do research before you start car shopping, lock in your financing through preapproval and budget accordingly. And with vehicle costs so high, now may also be a good time to consider leasing or even buying a used car instead of new.
Along with our experts, Brian Moody, executive editor at Autotrader, shared his advice on how to save money regardless of the macro car buying environment.
1. Research before heading to the dealership
Online resources have shifted the car buying experience greatly and now enable you to know exactly what dealers have on the lot before going in person. This is especially important with less inventory available. Check vehicle availability in your area before going in person. Otherwise, you may be pushed to purchase a vehicle you haven’t done enough research on,
Moody recommends “doing the bulk of research online well before visiting a dealership in person.” Pay close attention to any incentives or extras that dealers may be offering. Two dealerships might be selling the same vehicle, but one may offer better extras like free maintenance or discounts on vehicle accessories, Moody explains.
2. Apply for loan preapproval
Loan preapproval is an important step when buying a new car. It locks in your expected monthly cost with a potential lender before buying the vehicle. You can then shop with a firm understanding of the amount you can spend. But when looking for loans be sure to approach it in the same manner you would vehicle shopping — compare lenders and don’t sign off on the first option you see.
As Moody explains, high prices make loan preapproval all the more essential to saving money. Moody also recommends getting preapproved with your local bank or credit union.
3. Stick to your budget
With vehicle prices hitting close to $50,000 you must use your budget as your guiding light when car shopping. While it is true that no matter the environment it is wise to stick to your budget, with prices this high there isn’t much wiggle room.
4. Consider leasing for the short term
If you have your sights set on a certain vehicle that you are struggling to find on the dealer lot, leasing can be an effective way to still get behind the wheel.
“While leasing long term costs more, leasing for the short term can help a buyer get the car they want at an affordable price,” Moody says. By the time the lease ends, the economic environment will likely be different, and you may be able to better afford to buy new.
5. Buy a used vehicle
If you have some flexibility, buying a used vehicle instead of a new one can be a good option. Not only will it ensure that you can actually drive away with a car, but it will also mean money saved. “Those looking for a great deal should look at used cars,” Moody says. With such high demand for vehicles and low inventory, new car prices will remain high.
The current state of the car market
Current high vehicle prices are influenced by a number of factors, like available inventory, remaining supply chain issues and inflation. All of these impact the price you pay at the dealership. But Moody explains that the main influence right now comes down to supply versus demand.
“There are only about 1 million new cars at dealerships across the country.” Moody says. “The used car inventory is more than double that. That low supply of new cars combined with strong demand is forcing prices up.”
On top of this, moves made by the Federal Reserve make borrowing money for your new car expensive too. The first quarter of 2022 saw drivers financing 13 percent more for their vehicles, according to Experian. During the second quarter of 2021 those taking out auto loans financed an average of $35,587 — versus the average $40,290 car owners are financing in 2022.
With the combination of high interest rates and expensive vehicles, you can expect to spend more money on a new vehicle.
Will vehicle prices return to normal?
The question of vehicle prices returning to normal is a slightly more complicated question. But, according to Moody, new inventory should begin to normalize by spring of 2023. “There are many new models on the way and some supply chain issues will be worked out by then,” Moody says.
Until then, you’ll need to be prepared to do more research than normal, and possibly settle for less than your dream car. But just because there’s a limited inventory doesn’t mean you can’t drive off the lot happy.
The bottom line
The lesson is this, if you have the flexibility to wait on buying a new car, it might be worth saving money. But if you’re like most Americans, waiting may not be an option. Instead enter car buying with a bit more research and prepare to spend a bit more even if you drive off with a good deal.