The Cost of Buying a Car Has Increased — Here’s How To Deal
Buying a car isn’t what it used to be. If you haven’t looked at new or used vehicle prices lately, you might be in for a surprise.
In December 2022, the average price of a new car was up 4.9% year over year to a record-high $49,507, according to Kelley Blue Book. And the average interest rate for a four-year auto loan on a new vehicle rose 2.36 percentage points year over year to 6.94% as of November 2022, according to the Federal Reserve.
Used car prices, meanwhile, have dipped 8.8% year over year as of December 2022, according to the latest U.S. Bureau of Labor Statistics consumer price index. But car buying app CoPilot says the average price of a used car is $30,899 — 30% above what it projects as normal. And Edmunds says average APRs for used vehicles increased 2.6 percentage points year over year to 10.0% in the fourth quarter of 2022.
If you’re looking to buy a new or used car, you might feel you have no choice but to accept these inflated costs. However, there are things you can do to save money on a vehicle.
4 tips for buying a car in 2023
No. 1: Do the prep work
“Shop around, shop around, shop around,” advises Matt Schulz, LendingTree chief credit analyst. “That’s true whether you’re talking about the car or financing.”
Some resources (other than traditional dealerships) to find cars for sale include:
“If you need to finance the purchase, make sure you get preapproved for a loan before you ever set foot on the lot,” Schulz says. “Chances are that the rates you’ll find through a site like LendingTree or through your research will be better than what you’d be offered at the dealership.”
No. 2: Consider a down payment
For those considering an auto loan, minimizing the amount you take out is the best way to save, especially as APRs continue to rise.
One way is to put together a down payment for the loan, which can help you save significantly. You may want to shuffle your budget to make room for extra savings or cut down temporarily on some “unnecessary” spending to prepare for the purchase.
No. 3: Use the tools available
Planning for a big purchase, like a new vehicle, is essential. It’s important to use the tools available to see how much you plan to pay versus what you can afford. Start by using a budgeting tool or app, like Mint, YNAB or HoneyDue (for couples). And if you’re looking at a car loan, another vital tool is available.
“Take advantage of loan calculator tools to help you figure out how much you can afford,” Schulz says. “Play around with the loan amount, length and interest rate to find the sweet spot. It’s way, way, way better to know that before you head to the dealership than to rely on the car salesperson to tell you what they think you can afford.”
No. 4: See if there’s wiggle room in your timing
Although new car prices continue to increase, there may be a larger downturn in used car prices. That’s because fewer Americans are buying used cars due to the rising costs and interest rates associated with those purchases. Simply waiting may save you significantly on a used car purchase. And, for many, it might make the most financial sense.