A customer shows the 2022 Toyota Prius at Longo Toyota in El Monte, CA on Wednesday, March 23, 2022.
MediaNews Group | Register Orange County with Getty Images
People spend a lot of money on their cars and trucks. In fact, about 16% of the average American budget goes to transportation, including vehicle costs and fuel. This makes it the second largest expenditure after housing but before events like savings for food, education and retirement.
Expense scales can make buying a car stressful – especially for young, first-time buyers who have a low-established credit history and low savings.
And today’s market makes it worse.
According to the Kelly Blue Book, the average cost of a new car (including cars, crossovers, vans, pickup trucks and SUVs) exceeded $ 47,000 by the end of 2021 – more than 25% in just two years. The average used car price has risen further, rising 42% from under $ 20,000 at the end of 2019 to over $ 28,000 two years later. This price increase surpassed the overall inflation of the same period. These are due to the production crisis caused by the epidemic, along with unprepared consumer demand and the global shortage of microchips.
So, what is the best way to buy the first car in today’s marketplace?
Where to start the process of buying a car
The first step a new buyer takes is to determine the car they need and their budget.
Selection takes some thought. A small sports car can work for a single person or couple, but not if they are planning to start a family. A great SUV can be great for camping and road-trips with friends, but it won’t be too much fun when it comes to finding fuel, paying for insurance or finding street parking.
“Think about your actual needs, how long you travel, how much you have to carry, and if you really enjoy driving and want something sporty,” said Ronald Montoya, senior consumer advice editor and content strategist at Edmunds. “Avoid extra shopping – you can probably take a small car for most of your needs and rent something big once or twice a year when you really need it.”
Buyers are likely to call everyone who looks appropriate, if there are only a few. “There’s no point in testing driving if it turns out you can’t afford it,” said Tom McPerland, who runs the car buying service Automat Consulting and writes about consumer issues and the automotive industry for hydroponics.
Most experts recommend not spending more than 20% of the tech-home salary on a car, including payments, insurance and fuel or electricity. There are many online calculators to help consumers determine how much a car buyer can afford.
Selecting the type of car to buy
Nowadays, about half of all auto buyers choose a crossover – a long vehicle based on a passenger vehicle with an open rear part (like a station wagon or SUV) instead of a closed trunk. Crossovers combine most of the efficiency and driving features of a traditional car with the somewhat off-road and bad-weather capabilities of a four-wheel drive SUV.
If you do not need a long driving position and rarely travel in deep snow, then a traditional car may be a good choice. Whether in the shape of a sedan, coupe, convertible or station wagon, cars tend to be lighter and have less gravity centers than crossovers, which aids in efficiency and handling.
Conversely, anyone who regularly travels on towed or poorly maintained dirt roads may lean towards a traditional SUV or pickup, which is usually built into the frame of a heavy-duty truck for this type of abuse. While most SUVs and pickups are gas hogs, there are some efficient options, such as the hybrid version of the new Ford Maverick and the diesel version of the Ram 1500 and Chevrolet Tahoe. On top of that, multiple electric options, including the Ford F-150 Lightning pickup, are entering the market next year.
Anyone who does not go off-road or go much but carries a lot of things or people or things should keep in mind that minivans still exist. This often overlooked part of the market is ideal for large families and has a range of front and all-wheel-drive minivan options that can seat up to eight people as comfortably as a car.
Finally, those who are considering getting an electric car may have to plan a long search. Battery-powered transport may represent the future, but most of the vehicles sold still use gasoline – electric vehicles accounted for only 3.4% of total vehicle sales in the fourth quarter of 2021, which is actually less than diesel sales (4.6%, mostly pickup) hybrid vehicles, gas and Combines electrical energy, creating a further 7.5%. Manufacturers are trying to increase battery production, though, and purchasing some new electric vehicles may still qualify for a ট্যাক 7,500 federal tax credit on top of state and local subsidies.
Once a buyer has a specific type of car in mind, they should read professional reviews (such as Car and Driver, Jalopnik and Edmunds) and search the owner’s reviews to determine which particular models they are interested in, then arrange a test drive.
New or used?
For many years, the financially smart move was to buy a low-mileage used car – two or three years old and in good condition. It may lack the latest infotainment equipment and a full factory warranty, but usually provides reliable transportation on a steep slope as vehicles will typically devalue about 20% in the first year and then 10% annually for a few years thereafter.
The Covid epidemic has silenced depreciation, but used car prices are rising faster than new ones. The shorter the price gap, the more attractive the new purchase becomes because the vehicles are in better condition, also, they have full warranty and can be financed at a lower rate.
Used Teslas has worked particularly well lately, as rising gas prices have sparked more interest in EVs and the economy of recharging vs. filling-up. Popular all-electric vehicles now averaged $ 65,000 in the used marketplace, close to their cost if new.
The best course of action for consumers is to look around, because it does not make sense to pay too much for new ones.
Users should also consider looking for a certified pre-owned vehicle, which most manufacturers offer through authorized dealers. CPO vehicles – usually low mileage and recent vintage – are thoroughly cleaned and inspected, then repaired if necessary. They offer a manufacturer-backed warranty on top of what remains of the original coverage and include some additional benefits such as roadside assistance or trip insurance. CPO vehicles are more expensive than other used cars, but they can provide peace of mind.
How to pay for an automobile
Buying a car directly – often called cash payment for the car, although it is more likely to involve a cashier’s check or credit card than literal cash – allows customers to avoid monthly payments and thousands of interest. But it’s not for everyone. Many do not have savings, plus dealers make money from financing and are less likely to negotiate prices for cash buyers.
“Cash is usually your best option because it limits how much you will invest in devaluing assets,” said Greg McBride, chief financial analyst at bankrate.com, a consumer finance site. “But don’t waste your emergency funds just to buy a car.”
In addition to paying cash, buyers can also go for leases or loans.
With a lease, consumers typically pay less monthly, but do not own the car at the end of the term – usually three years – unless they pay a large single payment. “Leasing is often a treadmill of payments,” McBride said. “You are basically renting the car and at the end of the lease you will return the car and start a new car.”
Since the lessees do not own the car for the duration of their lease, they may run into problems if they make changes such as sound system or engine upgrades. They will also have to pay fines for excessive wear and tear, expiration of the lease, or for driving more than a certain amount (usually about 12,000 miles per year, although some new leases have dropped to 10,000).
In addition to reducing mileage allowances, leaseholders continue to limit the incentives they offer (such as cash discounts or subsidized interest rates). For this reason, most people in the current car market should look at debt if they cannot afford to pay cash. Loans usually end at a lower cost than leases – especially for customers who have been holding vehicles for years. Also, those who have a loan do not have to worry about mileage or wear, or pay a fine for early termination. Most importantly, at the end of the loan term, the consumer becomes the owner of the car. The term of the loan can be up to 84 months or more. But most experts recommend sticking to small loans with low interest rates to keep overall costs low.
Loans usually end at a lower cost than leases, especially for customers who have been holding vehicles for years. Since they own the car after repaying the loan, consumers do not have to worry about mileage or wear and there is no penalty for early completion. “We recommend a loan to most buyers, and keep the monthly payment reasonable and at least a 20% reduction to avoid GAP insurance,” Montoya said.
GAP (short for Guaranteed Asset Protection) protects people who have a loan or lease on a car and owe more than their value. If their car is total or stolen, it complements regular insurance by providing a difference between the value of their car and what it owes.
McPerland says anyone financing their credit score needs to understand where they stand and then cross-shop lenders and leaseholders. “It’s always wise to pre-approve a loan before you talk to a dealer,” he said. “That way, you have some leverage for them so you can find a rate that matches or beats what you already have.”
Where to buy: Dealer or direct?
Most new and used cars are still sold through dealerships. Using a dealer allows you to view and inspect multiple vehicles in one day and provide access to financing and sometimes even useful services such as free oil change or tire rotation. In many cases, a dealer will also accept a buyer’s old car for a transaction – where the price of a used car is so high, it can be a big help.
Problems that dealers use include their often aggressive sales strategies and the tendency to fold additional services into selling cars at inflated prices. For example, engraving a vehicle identification number (VIN) on a windshield is a useful practice that can prevent theft and reduce insurance rates, but a dealer can charge over $ 300 for this work, which customers can do themselves with $ 25 kit. To avoid paying exorbitant fees, it is wise to ask for dealer-installed options or markup, Montoya said. It’s a seller’s market, and sellers may not be able to discount any of the costs they incur, but buyers can always take their business elsewhere.
Another option is to use a no-haggle dealership, typed by CarMax, Vroom and Carvana. These companies may charge more than traditional dealerships, but usually score positive reviews from customers. Each promises stress-free shopping with a non-negotiable price and a refund guarantee, as well as large and easily searchable inventory. In most cases each will deliver a new car to your door. Unlike others, Carmax also offers physical location where buyers can use the car.
Of course, you don’t have to deal with dealers. Buying from a private retailer is usually cheaper – there are fewer overheads to deal with and very few opportunities for any bulky add-on costs. Personal shopping can also be less of a hassle for customers who do not mind handling their own paperwork, arranging their own finances and paying the applicable state sales tax when registering a vehicle.