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Since the beginning of the pandemic, 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. With the average price of a car these days hovering around $48,000, it pays to not drive blindly.
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?
The key is to be as well-informed a consumer as you can be and to take your time, if you are lucky and have time available. Those stuck having to buy a car in a day or two are in the least advantageous position, so it pays to put in the work ahead of time if you think your car is nearing its end.
“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.
This logic applies whether you are looking to buy a new car, a pre-owned vehicle or are planning to hit the used car market.
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 you are trying to put together when buying a car.
So the first thing to do is to 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 to buy a car.
“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 in your back pocket will also save you from some of the more unscrupulous practices some dealers have been known to 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. Do the research
An informed consumer usually ends up being the most satisfied consumer.
A good place to start is to 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 are all important questions that will help narrow down what’s the right car for you. It will also quickly show you whether a specific make and model that you may have your eye on will even work.
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.
The next step is to begin educating yourself on your local market. Start searching online for what is available from dealers in your area and who is offering what. Given the tightness of some markets, It sometimes helps to expand your search area a little further as driving even an extra thirty 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.
Think about where gas prices are at the moment. 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 is 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
A key thing to ask dealers to send you is 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 it in writing will also make it easier to compare their ultimate price with what others are offering.
The trick is to do as much of the negotiating and paperwork as you are able before even going to the dealership, so you know exactly what you will pay before you get there.
At this stage, when you have zeroed in on a few cars, an important thing to do is call your insurance company and find out how much more it will cost to insure the car you have your eye on. The difference in the insurance cost between two models may make one work better for your pocketbook than the other. Do not leave this call until after you’ve bought the thing.
It is also vital that you 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
Only once you have gotten a full understanding of your spending limits and the costs, zeroed in on a few makes and models that might fit the bill and gotten pre-approved for a loan, is it time to head to the dealer.
While getting your finances in order in advance is key, test-driving a vehicle is important as it’ll 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 of buying a car, but for those taking a loan and trading another vehicle in, it is important to go into this phase treating these as three separate negotiations.
“Dealers will try to bring these three things together into one conversation, but by viewing them separately will put you more in control of the transaction,” Bennett says.
In reality, one usually can get a better price selling a used car themselves, 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.
At this stage, many buyers come in with a target figure in mind for what they want to spend, but both Bennett and McParland say that is not always the best approach.
“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 over time you end up spending more. Or you end up buying a car with features you don’t want or need because the dealer is trying to clear a model off 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.
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