Buying a car has become challenging in recent years. Prices have skyrocketed, largely thanks to several factors tied to the COVID-19 pandemic. And many vehicles have become harder to find.
In fact, it could be argued that this is one of the worst times ever to buy a car. So, before you head to the dealer lot, here are some things to know so you can avoid wasting money by purchasing the wrong vehicle.
Used car prices are on the risie
After many months of slowly declining costs, used car and truck prices are rising again. The Consumer Price Index for April reported that prices rose 4.4% between March and April.
So, if you're in the market for a vehicle, things are starting to look more difficult again. However, the silver lining is that prices were still down 6.6% year over year.
While it’s still expensive to buy a used vehicle, you may find a better market now than last year.
Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.
New car prices continue to increase
The Bureau of Labor Statistics found that new car prices were up 5.4% in April compared to a year earlier.
Prices actually softened a bit in April compared to March, with new car prices down 0.2%. However, the cost of new cars had been climbing for many months previously.
There's big demand for expensive vehicles
Many of the best-selling cars in the U.S. are also among the most expensive, which could price you out of getting a new vehicle.
According to data and analytics firm Motor Intelligence, SUVs or trucks were among last year’s best-sellers.
Trucks and SUVs tend to be more expensive than sedans. However, the popularity of these vehicles means dealers will stock their lots with more costly options, which could make it harder for you to find a car that might fit within your budget.
The chip shortage still impacts manufacturers
Today’s vehicles depend on computers and the chips that operate them. But unfortunately, a shortage in semiconductor chips in 2020 led to a slowdown in the production of new cars, which still ripples through the industry today.
The number of available chips is improving, and shipment delays continue, keeping prices high.
The used car market is still competitive
Fewer cars are available in used car lots. Traditional sources of used cars — such as lease returns, trade-ins, and rentals — are not yielding their typical bounty.
That means shoppers are competing for fewer vehicles, which helps drive prices higher.
So be prepared to adjust your budget if you’re looking for a used vehicle. Don’t be afraid to drive your current vehicle longer while you save money for a new car.
Pro tip: If you need a car soon but don’t have the money to pay for it, consider launching a side hustle or finding another way to make extra cash. That way, you will be better able to afford a car.
Supply chain issues remain a problem
Supply chains seized up in many industries during the COVID-19 pandemic. As a result, factories shut down, and shipping slowed.
Those issues are still impacting the auto industry. So if you want a new car now, you might have to be flexible and choose a different vehicle than you planned.
High interest rates make loans unaffordable
One great tip when buying a car is to consider getting financing through your local bank or another financial institution. You can often get a better deal than you would if you accepted dealer financing.
But even if you choose a loan from your bank, expect to pay more than you would have a year or two ago. This is because interest rates continue to rise, making loans more expensive when purchasing big-ticket items such as cars or homes.
If costs are too high and you can afford to wait, it might pay to postpone your dreams of a new vehicle and continue to drive your old car a while longer while you save more money.
Making a larger down payment or paying for your vehicle in cash can reduce the sting of higher loan rates.
Dealers aren’t giving deals
Dealers often give buyers incentives in hopes of moving products off of their lots so they can make room for new models.
However, the current shortage of vehicles means that demand is high, and dealers have less reason to give customers a break on the cost of a car.
Some dealers are even pushing prices higher due to the lack of supply. Therefore, some experts suggest waiting until later in the year to buy a car, when inventories might grow and prices might be slightly lower.
The best sales are at the end of the summer
It's tempting to buy a new car now so you can cruise around in it during the summer. But it often pays to wait.
Carmakers usually roll out their newest models in the fall, which means some of the best sales are at the end of the summer. That's when dealers try to get older models off the lot.
Of course, these are unusual times, and there is no guarantee that we will see the same types of deals we typically would later this year. Still, delaying buying for a few more months might pay off.
Buying a car in this market can be difficult, but there are still ways to get what you want.
For example, instead of buying a new car today, consider saving some extra money to boost your bank account. That way, you can take out a smaller or no loan later when you finally decide to buy your new wheels.