If you’re looking for a new or used car, the good news is that prices have fallen in the past year. But if you haven’t been car shopping in 5 or 10 years, be prepared for sticker-price shock.
The average price of a new vehicle was just over $47,000 in January, according to Kelley Blue Book. That’s up nearly $10,000 from five years earlier.
In contrast, the average price of a used car in July was $25,415, still higher than $20,200 in mid-year 2019.
How can you pay the least on a vehicle and get help financing it? One key: Focus on the purchase price, not the monthly payment.
In an ideal world, you would pay on the spot for a new car and eliminate loan interest charges. Some dealerships offer price discounts for cash. If you’re not in a position to buy a vehicle without financing, here’s your roadmap.
Start with research. The more you know about the market price of a vehicle, the better you are able to tell the difference between a good deal and a bad one and negotiate with a salesperson to get the price you want. Websites like Kelley Blue Book and Edmunds produce prices that match your vehicle's criteria for make, model, year, and options.
Time your purchase. Shop at the end of the model year. Dealers like to clear out on-the-lot cars to make way for the newest ones in the last four months of the calendar year.
Buy a used car. New cars depreciate rapidly, especially in the first two years. Here’s an example from Edmunds on the most popular SUV in 2024, the Toyota RAV 4 LE. You can expect it to lose $5,037, or 15% of its cash price, in the first year, assuming you drive it 15,000 miles. It will drop another $1,680 in the second year for a total depreciation of 20%. Used cars lose value slower, giving you more car for your dollar over the long term.
Negotiate price, not payments. A salesperson may ask how much you can afford and stretch your payments to 6 or 7 years to qualify you for a loan. Armed with price information and lender pre-approval, you will be in a stronger position to name your price.
The lower the price, the less you borrow. If you qualify for a shorter loan term, you’ll save on interest and be out of debt sooner.
If you are looking to buy a new or pre-owned vehicle, make plans to attend Tropical Financial’s on-site car sale Oct. 19-20. The credit union’s car shopping partner, Auto Advisors, pre-negotiated prices on over a hundred different vehicles so you won’t have to haggle. You can also save money on gap insurance or get a lower interest rate on a loan, and payments are deferred for 90 days.
