Summer can be an excellent time to look for discounted vehicles if you missed out on Black Friday sales. Summer, like December and January, typically brings a lot of car commercials with deals and discounts. This year, there may be even more deals due to the resolution of supply chain problems that affected vehicle availability. If you plan on buying a new car on Memorial Day or Fourth of July, following these tips can be helpful.
Will buying a car this summer cost more?
According to a car salesman with 19 years of experience, it is likely that you will have to spend more money when purchasing a new car this year, even with summer sales.
Jeff Orenstein used to work in sales for a BMW dealership in Arizona for almost 20 years. He has now switched to financing and is one of the four finance managers on the lot. This summer, he has observed a higher number of people looking to purchase new or used cars.
In a recent conversation, he mentioned that they sold 27 cars just on the previous Saturday, which was an incredibly busy day.
Kelley Blue Book reported a slight decrease in prices for new vehicles. In Feb 2023, new vehicle transaction prices went below sticker prices. However, Orenstein believes that despite this decrease, a combination of factors will still result in higher out-the-door prices for buyers than pre-pandemic prices.
“He says that while the prices of vehicles have come down, unfortunately, the prices of parts, labor, and tires have significantly increased. This is reflected in the current Consumer Price Index, which measures the relative cost of common goods, sitting at 301.8 as compared to 287.7 a year ago. As expected, the high inflation has affected vehicle costs too.”
The cost of buying a vehicle has gone up due to higher interest rates. Experian reports that the average monthly payments for new vehicles were $716 in the fourth quarter of 2022 and $526 for used vehicles.
Don’t get trapped in too long of a loan term
Orenstein advised buyers not to focus solely on monthly payments when shopping this summer. While looking for affordable payments is understandable, extending the loan term too much can lead to paying more interest in the long run.
The other day, someone came in and asked for a 96-month loan, and it was such a surprise that it felt like I had swallowed my Adam’s apple.
The car loan term is eight years, which is longer than usual. However, the borrower decided to go for a more accessible option, which is an 84-month loan that is still considered long-term.
To save money, it’s a good idea for drivers to opt for shorter loans due to high prices and increasing interest rates from the Federal Reserve. For instance, according to data from early February, the average rate for a 36-month used car loan is 6.97 percent, while a 48-month used car loan has an average rate of 7.23 percent. Minor variations can lead to reduced expenses for drivers in the long run.
According to Orenstein, borrowers tend to feel the urge to change their loans at around 42 months and typically switch by the time 48 months pass. As a result, they do not end up paying the full amount of interest that was originally agreed upon. They simply choose to keep their payments low for as long as they plan on keeping the loan.
If you choose a loan with a longer term to have lower monthly payments but plan to trade in your vehicle after a few years, be careful not to end up owing more than the car’s value. This can occur due to depreciation and interest. Being upside-down on your loan may result in additional expenses being added to your next loan. To avoid this, you can make extra payments or a larger down payment.
More available rebates
During the summer season, buyers may come across rebates as a significant benefit. These exclusive promotional offers provide cashback when purchasing a vehicle. Nonetheless, since rebates are provided by the manufacturer, customers can only receive them by buying from the dealership directly.
During Memorial Day and July Fourth, drivers can benefit from special rebates and other incentives. These offers may help to make up for the current high rates and prices.
According to Orenstein, the rebates and incentives currently available can offset some of the interest rates and provide individuals with a bit of financial relief to proceed with a purchase.
More drivers are leasing cars
Last week, Orenstein noticed that out of the 27 customers who left, many signed lease agreements. As of March 2023, leasing has accounted for 20 percent of all retail sales, according to data from Cox Automotive. This figure has increased from just under 18 percent in 2022, which Cox attributes to a shortage of inventory that has now been mostly resolved.
Buying a car is better if you want fewer restrictions and full ownership. But if you want a lower monthly cost, leasing is ideal. This is particularly true for luxury cars. Recent data from Experian shows that, on average, leasing a car costs $138 less per month than buying one.
Tips for shopping in the summer heat
If you’re planning to go to a dealership this season, here are some tips to make sure your shopping experience goes smoothly.
- Clear your calendar. Due to the high demand for holiday deals, there may be delays in scheduling test drives and obtaining financing. Please be aware that many other customers will be inquiring about these offers.
- Bring sunscreen and water. Exploring unshaded lots can be challenging, so if you’re planning on checking out several vehicles, it’s a good idea to bring a hat, sunscreen, and water in case you get too hot.
- Research online. It is advisable to research available vehicles on the dealership website before going to their lot. This will help you select the right vehicle that suits your needs. Ensure that the car you intend to purchase is available on the lot.
Don’t just think of summer as a time for BBQs and beach trips. It’s also an excellent time to check out summer car deals and buy a new car, especially with the hot days ahead. Just remember that prices are generally higher in 2023, so be ready to spend extra.