After houses, new cars are typically the second most expensive purchase most people will ever make. And like so many other things turned upside down by COVID, vehicle prices — on everything from minivans to mid-sized sedans — are reaching record highs this summer. Microchip shortages are partly to blame for a lack of inventory that has auto dealers marking up what they have left on their lots.
With the average cost of new cars rising to $40,472 in the U.S. in March of 2021, and more than 85% of buyers seeking loans to pay for them, it’s wise to negotiate the best deal you can. The Federal Trade Commision (FTC) and consumer advocates offer these tips for ensuring shoppers get a fair deal when it comes to pricing and financing new vehicles.
Secure financing with a credit union or bank first
If you aren’t paying cash for your new ride — and fewer than 15 percent of all buyers do — make sure to seek an auto loan from your credit union or bank before heading to a dealership. Financing obtained by dealers, even if the dealer contacts lenders for you, may not be the best deal you can get, notes the FTC.
Because profit margins on new cars can be tight, some dealers use financing to make extra money on that part of the sale. For example, someone who qualifies for an annual percentage rate (APR) of 3% might be told by a dealer they qualify for 5%, so the dealer can pocket the spread. Before deciding which loan to take, compare the APR and the length of the loans. Typically, the longer the term of the loan, the more you end up paying in interest.
Say no to most dealer-installed add-ons
If the car or truck you want comes loaded with dealer-installed extras, don’t assume you have to take them (and pay more) as part of the deal. Does your VIN really need to be etched on the glass? Do your tires need to be infused with nitrogen? Is rust-proofing absolutely necessary when most manufacturers coat cars before they leave the factory? While some dealers add options to pad the price of a car, smart shoppers should ask for those extras to be removed or for a discount on the markup.
Skip the extended warranty for now
When it comes to new cars, it’s hard to see the value in an extended warranty that won’t kick in until the vehicle’s regular warranty runs out in three to five years. You are under no obligation to purchase an extended warranty when you buy a new car, so don’t be pressured into paying for such a plan years before you may need it.
You would be better served to save some money to purchase an extended warranty just before your regular plan runs out from an insurance company or your trusted bank or credit union. Also consider finding a good mechanic at a locally-owned business in your community. Independent repair shops generally guarantee parts and labor and offer warranties on repairs. They typically charge far less for similar repairs made at a dealership.
Research the value of your trade-in before selling
Used cars are also demanding top dollar right now, so make sure a dealer gives you a fair amount for your trade-in before handing over the keys. Check online resources such as Edmunds or Kelly Blue Book to figure out what your old car is worth. If you aren’t offered enough from a dealer, consider selling your car on your own. It may take a little longer, but you will likely make more money overall.
Consider other options
If you can hold off for a few months, auto experts expect the market to chill out by late winter. You can also consider buying a low-mileage car that’s new-to-you that will almost certainly cost less than a never-been-driven vehicle. And if a dealer won’t budge on the price of your dream car, you have the option of walking away in search of a better deal down the street or online.
With reporting by Casandra Andrews