To get a car for cheap, repair your credit prior to getting pre-approved for an auto loan and research the cars that interest you before heading to the dealership, or save your money and pay for your car with cash. Moreover, consider leasing instead of buying a new car to get a car for a cheap price.
Car buying, whether new or used, requires a significant outlay of cash. Whether buying it outright with cash or paying over a length of time when you finance your purchase, you're going to pay a pretty penny for your new Honda, Toyota, Nissan, Kia, or Hyundai.
Kelley Blue Book says that across all types, new cars cost an average of 5.43 percent more in 2021 than they did in 2020. The average vehicle transaction was about $41,263. As car prices escalate, here are some ways to get the most for your money and get the best car for the best price.
Buy A Cheap Car With Cash
One of the cheapest ways to buy a car is to pay cash. When you pay interest on an item that actively depreciates, you're not just losing money once, but twice. If your interest rate on your car loan is 6.9 percent, you'll pay over $3,600 in interest by the end of the loan period.
But that's not all the extra money you'll pay. The average car depreciates about 20% in the first year and then 15 percent each subsequent year. A $30,000 vehicle loses about $13,700 in value during that same loan period. In other words, you'll lose about $17,400 within a short time after making the deal. If you pay with cash on a used car, you won't pay the interest, and you won't be paying for as much depreciation either.
Get Pre-approved If You Aren't Paying All In Cash
If you don't have the cash for a new car, get pre-approved for an auto loan with an outside lender before going to buy. That will allow you to get competitive interest rates from the dealership versus your pre-approved rate. In terms of the loan itself, it's best to keep the loan to 48 months or fewer, and the monthly payment shouldn't go over 15 percent of your monthly take-home income. If you get pre-approved for an auto loan, you can also take advantage of good financing deals from private sellers.
Give Your Credit a Check-Up
One of the most significant issues with a loan is how much interest you'll be charged when you finance a new or used car. And a good credit score is key to minimizing that burden. Lenders want assurance the risk of default on the loan is minimal, and they reward buyers with good credit with the best rates.
If you don't have a credit score of at least 670, work on your credit before applying for a car loan. That includes making sure there are no delinquent payments on accounts, cutting down credit card debt, or reducing the amount left on mortgages or student loans.
You can shave thousands of dollars off the total cost of your car simply by qualifying for a better interest rate. Go for a car loan with a bad credit score and plan on paying more per month, being asked for a sizable down payment, or have a loan that lasts more than five years.
Research Your New Vehicle and Stay Flexible
Try not to attach yourself to only one type of vehicle or one make and model. The more discerning you are, the harder it is to find a good deal. Think of the vehicle needs that you have on an everyday basis, not the occasional want.
For example, if you don't regularly haul large items, you probably don't need a pickup truck for everyday use. It's easy enough to rent a pickup truck when you do need this. Save money on gas by purchasing a passenger car instead.
Spend some time on sites such as Autolist, Autotrader, and Edmunds to get all of the details about your proposed car purchase and find cheap used cars in your area. Check the vehicle history on sites such as Carfax to make sure there's nothing sketchy in the vehicle's past that might come back to haunt you.
Find Out The True Ownership Cost
It's not enough to know what the car costs, but you should also understand the cost of owning that car. The true cost of ownership includes what you'll pay in gas, car insurance, repairs, taxes, licensing, maintenance, and more.
You can get an idea of the actual cost of owning various vehicles using sites like Edmunds.com.
Consider Leasing Instead
Leasing can be a good option for putting yourself behind the wheel of a new or late model vehicle without actually buying the car. It's a popular way to get a more expensive vehicle for a smaller monthly payment. And it could be a good idea if you can benefit financially from leasing a new car every few years or don't drive many miles, but enjoy swapping cars after a certain amount of time.
A leased vehicle usually comes with an extended warranty and even a regular service plan, reducing maintenance costs. In some cases, you can write off some of the costs of the lease payment on your business income tax return.
When your lease period ends, you can either give the car back to the dealership, lease a new vehicle from them, or purchase it for a previously agreed amount. However, the problem with leasing is that there is no equity in the car to use to offset the cost of leasing another. It's not a good option for those who want to go a while without any car payment.
Buy A Car At The Right Time
There are better times than others to get a good deal on a new car. One of the best times is at year-end sales. At this point, dealerships are trying to make their annual goals and get rid of the previous model years left on their lots.
However, car sales can be depressed when cold weather yields fewer car shoppers in many places. And at other times, take advantage of dealer quotas at the end of the month, end of the quarter, and beginning of the week.
Scope Out Old Car Inventory
Dealerships have to turn over inventory in a reasonable amount of time to stay profitable. Any vehicle sitting on the lot for a long time is likely to be ripe for a good deal.
How do you find these vehicles? There are a few clues. They may have unusual paint colors compared to the rest of the cars on the lot. If you look up close, you might notice dust in hidden places that the car lot washers often miss, such as beneath spoilers.
Once you find a vehicle that looks like it's overstayed its welcome, open the driver's door and look at the door jamb. The car's manufacture date should be over three months old for domestics and a bit longer for import cars.
Another way to look for slow sellers is to search car ads online and filter the dates.
Consider Membership Warehouses
You may not realize that it's possible to buy a new car at a warehouse such as Costco or Sam's Club. Not only that, but you can usually get a no-hassle price. The reason for this is that they have already negotiated a price for the vehicle.
You can look for your car online and then go to the nearby partner dealership and get the car for the preset amount.
Upscale trims and luxury options don't hold much value when it comes to selling the vehicle used. It especially applies to tech options, which become outdated quickly.
Not only that, but many electronic options inside the car are just one more thing that can break down and need repair.
Get A Manual Transmission
That especially applies if you're looking for a reliable used car. Fewer Americans than before can drive a manual, so the price is typically lower on these, whether new or used.
Along with getting a good deal initially, you can usually keep saving with a manual. They generally get somewhat better gas mileage, and they can save on brake wear if appropriately driven.
Transmission repairs on a manual are usually far less costly since the main moving part is the clutch. Some estimates say you can save up to $30,000 over your lifetime if you only own vehicles with a manual transmission.
Buy Below Invoice
Car buyers often assume that the invoice price is the lowest price they can get. They think that the car dealership paid this amount for the vehicle and won't let it go for that price and not under it. However, that's not true.
The stated invoice price is not necessarily exactly what they paid for it. Not only that, but they may get incentives to sell certain vehicles, which makes it still profitable to sell them under invoice.
If a dealership tries to convince you that the invoice price is the lowest they can go, you don't have to believe them. It's also essential to check for manufacturer rebates as the dealership is not obligated to tell you about those either.
Even if you love haggling for a new car, it's generally better these days to shop online first. With the advent of the COVID-19 pandemic, car shopping online has gone mainstream, and it's not unusual for deals to be made entirely through the virtual world.
The same is true of contactless delivery and test drives. And as a bonus, a car dealer's internet sales department will often quote lower prices than the lot salesperson.
If you negotiate online, it also allows you to shop around and compare prices. You can get a quoted price and then email another dealership and ask if they can beat it.
Deal Separately With Your Trade-In
It's best to look at your trade-in and your potential new vehicle as two different transactions. Getting quotes this way can stop you from falling into various purchase price traps.
If you have a used car in good condition, especially if it has low mileage, it would behoove you to sell it in a private sale versus taking a dealer trade-in value on it.
Be Ready To Walk Away
One of the best tactics in your arsenal is the determination to walk away from a deal. If you have a firm price that you want to pay, it's easier to do that.
There are some stories of people leaving a deal only to get a text or phone call from the dealership saying that they're now willing to let it go for your price.
Keep Your Phone Handy
During negotiations, use your phone to look up terms you don't understand or verify market values. You can even use it to compare prices on other lots if available.
Salespeople are less likely to make false claims if they see that you have research material at your fingertips. But it also gives you an excuse to take a break and escape some of the pressure of the negotiations.
Always Thoroughly Read The Paperwork
Even though there are incidences where the dealer made a mistake in the buyer's favor, this is usually not the case. If anything, they may try to slip something in that you won't see if you're not paying attention or if you don't read the paperwork.
It's also a good idea to have the person with you read it as well. And always have someone with you when you go to buy a car.
Be Willing to Refinance
You may choose to finance your vehicle through the automaker's credit to get incentives, but you should also see if you can line up refinancing.
Start by making sure there are no penalties for this and then get a pre-approval from your lender. One of the cheapest ways to buy a new car is to take sizable rebates in trade for a higher interest rate and then refinance the loan after 30 days to get a lower interest rate. You then save money in two directions.
That includes going to another bank or credit union to get a more favorable rate. Some might require you to open a checking or savings account there, but that could be worth getting a significantly lower finance rate.
As you can see, there are several options for reducing the cost of a new or used vehicle when you know the cheapest ways to buy a car in person and online. Check out Autolist when you're ready to find the best price on the new or used vehicle of your dreams.