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If you overslept on Black Friday, summer is your chance to find a new vehicle with extra discounts. Like December and January, the summer season is famous for a deluge of car commercials boasting deals and discounts.
This may be especially true this year as vehicle availability returns to normal following supply chain issues. Consider the following tips when purchasing a new car this Memorial Day or Fourth of July.
Yes, on holidays like Memorial Day, dealerships tend to offer special deals and incentives for drivers.
Will buying a car this summer cost more?
From a car salesman with 19 years of experience under his belt, the answer is yes. You should prepare to spend a bit more this year when buying a new car —despite summer sales.
Jeff Orenstein worked sales for a BMW dealership in Arizona for almost 20 years until he moved over to financing. Now serving as one of four finance managers on the lot, he has already seen an increase in shoppers seeking to buy new or used this summer season.
“Last Saturday alone, we sold 27 cars — it was just a crazy, crazy Saturday,” he recounted in a recent conversation with Bankrate.
Prices are inching down, according to Kelley Blue Book — new vehicle transaction prices dropped under sticker prices in March of 2023. But Orenstein predicts a combination of things will keep the out-the-door price above average for buyers compared to pre-pandemic prices.
“Prices have come down,” he says. “Unfortunately, you know, parts, labor, prices of tires and the prices of everything” are dramatically higher. The Consumer Price Index — which measures the relative cost of common goods — currently sits at 301.8, up from 287.7 a year ago. Unsurprisingly, high inflation has impacted vehicle costs as well.
Higher interest rates have also increased the cost of purchasing a vehicle. Average monthly payments for new vehicles were $716 in the fourth quarter of 2022 and $526 for used, according to Experian.
Don’t get trapped in too long of a loan term
When asked for advice for buyers this summer, Orenstein explained how focusing on monthly payments alone can be a risk. While seeking an affordable payment is normal, it is important not to overextend your loan term and end up paying more interest over time.
“I had somebody come in the other day wanting a 96-month loan, and well, I thought I swallowed my Adam’s apple,” he shares.
That’s eight years — an unusually long car loan term. He says the borrower ultimately went with the still long-term but more accessible 84-month loan.
But as prices remain high and interest rates continue to increase based on moves made by the Federal Reserve, drivers who want to save should consider shorter loans. A 36-month used car loan in early May has an average rate of 6.97 percent versus a 48-month used car rate of 7.23 percent, according to Bankrate data.
Even a slight difference can mean a less expensive overall cost for drivers.
But, as Orenstein points out, many “start to get the itch at 42 months, and by 48, they’re trading out of them anyway.” This means that the borrowers aren’t “really paying that amount of interest. They’re just keeping that payment low for the time that they’re planning on keeping it,” he shares.
If you want to opt for a longer-term loan for the lower monthly payment but intend on trading it in after a few years, beware of going upside-down on your loan. This can happen when you owe more than the vehicle is worth due to depreciation and interest. Going upside-down could mean you have to roll excess costs into your next loan. You can make extra payments or a larger down payment to avoid this.
More available rebates
Rebates are one major perk summer shoppers may encounter. These special promotional deals come in the form of cash back for a vehicle purchase. But because rebates come directly from the manufacturer, drivers are only able to get them when purchasing straight from the dealer.
Memorial Day and July Fourth are popular times to offer special rebates and other incentives to drivers. These can help sweeten the deal and counteract current high rates and prices.
“With the incentives, with the rebates [available], that’s kind of helping offset some of the interest rates and gives people a little bit of saving grace to move forward on something,” Orenstein says.
Rebates can be a great way to save — just don’t let them tempt you into overspending on a fancier car. Compare your options with this calculator before deciding.
More drivers are leasing cars
Of the 27 customers Orenstein saw drive away last week, many signed off on leases. The leasing share of all retail sales is up to 20 percent as of March of 2023, according to Cox Automotive data. This is back up from a dip in 2022 when it fell just below 18 percent. Cox attributes that drop to a lack of inventory, which has now largely resolved.
Buying boasts fewer restrictions and the road to full ownership, while leasing will cost the least monthly. This is especially true for those looking to get behind the wheel of a luxury vehicle. On average, leasing a car costs $138 per month less than buying, according to recent Experian data.
Take advantage of a lease vs. buy calculator to determine the cost difference over time.
Tips for shopping in the summer heat
If you are deciding to set out to a dealership this season, consider the following advice to ensure the shopping experience goes smoothly.
- Clear your calendar. You’ll be one of many looking for special holiday deals. Arranging test drives and financing might take longer than usual as more people will want to purchase during holiday weekends.
- Bring sunscreen and water. Wandering through unshaded lots is not for the faint of hearts. If you plan to explore multiple vehicle options, it’s smart to come prepped with a hat, sunscreen and water in case you get too warm.
- Research online. Rather than getting to the lot and deciding what vehicle is right for your needs, research your options beforehand. Many dealerships have a website listing available vehicles that you can explore. Confirm your intended car is truly on the lot.
The summer season is known for more than just barbecues and trips to the beach. With hotter days upon us, it is also a great time to take advantage of summer car deals and drive off in a new vehicle. But when shopping, you should prepare — as with all costs in 2023 — to spend a bit more money.