The most frustrating part of buying a car has traditionally been tense negotiations at the dealership. Lately, buyers should consider themselves lucky if they can find a car they actually want to buy, at the full sticker price.
Spiking demand, manufacturing slowdowns and supply chain problems hit the auto market particularly hard during the pandemic. This resulted in slim pickings and soaring prices for anything with four wheels. While the inventory of cars has gotten better in recent months, it’s still an extremely challenging market for buyers.
People long accustomed to scooping up bargains on used cars have been hit with sticker shock since 2020, when prices began soaring.The average price for a used car was $28,381 in the first quarter of 2023, according to Edmunds. That’s down a bit from the first quarter of 2022 (when the average was over $30,000), but quite a leap from 2018, when used vehicles sold for an average under $20,000.
New cars are still in short supply compared to before the pandemic, and prices for the relatively small number of vehicles available at dealerships have increased accordingly. At the end of 2022, the average new car sold for nearly $50,000, compared to about $46,000 a year earlier — and less than $40,000 one year before that.
Plus, until fairly recently, more buyers have had no choice but to pay over the manufacturer’s suggested retail price (MSRP), aka the sticker price. In March 2023, the average sale price for a new car dropped below MSRP, after a 20-month stretch when buyers typically had to pay higher.
In this environment, many would-be buyers have understandably been holding off on picking up a new set of wheels. But even though vehicle prices continue to outpace inflation in general, the consensus is that it will continue to get easier to buy a new car, with rising inventory and costs that are expected to slowly flatten.
The gist is that buying a car now will be less challenging than it was in 2022, though frustrations and elevated prices are still very much realities.
If you need a vehicle, here are seven tips for buying a car in 2023.
1. Set your car budget
While used car prices have risen at an even faster pace in recent years than new vehicles, you’ll still probably pay a lot less if you buy used. The average used car is selling for about $20,000 less than its brand-new counterpart — in the neighborhood of $30,000 for a used vehicle, versus closer to $50,000 for a new one.
In addition to deciding whether to buy new or used, it’s worth considering many different kinds of vehicles, especially if you haven’t gone car shopping in a while because the market has changed significantly. Money’s Best Autos rankings can help you navigate the options, ranging from plug-in hybrid SUVs to large pickup trucks and beyond.
If you’re buying a used car, comparing the differences between buying from a car dealer vs. a private seller is also helpful when setting a budget. Private sellers generally sell vehicles for lower prices, but the downside is you won't walk away with a warranty or guarantee. Private car sales are as-is deals.
Overspending is easy to do when buying a car in 2023. So consider the purchase price and your monthly payment if you get an auto loan when setting your spending budget. You can also acquire some price quotes from dealers to see where prices stand.
2. Identify your wanted cars and their features
Gone are the days when you can walk into a dealership and find any type of car you want. But you can still make a list of the details and features you want in a vehicle, to help you get as close as possible to finding the perfect car.
In today’s market, it's more important than ever to narrow your list of "must-haves." Be willing to compromise on the trim level and features that are less essential, and perhaps the manufacturer and model as well.
For example, you might struggle to find a Kia Telluride available with the trim level you want. But you may have better luck locating a similar-size three-row SUV from Hyundai or Chevrolet that includes your preferred features at a fair price.
Even if you always buy used, consider new — there may not be that big of a price difference. But beware: certain hot models are commanding huge premiums. So it's best to be open to alternatives, and to literally expand your search. Websites for automakers and car sale services typically let you set a radius for vehicle searches (20 miles, 50 miles, and so on), and while it would be nice to find a great car down the block, extending the distance increases your odds.
You'll also need to act quickly. The average amount of time someone spends buying a car (including shopping around and the act of purchase) is now around 15 hours. You’ll want to do as much of the research as possible ahead of time, so that once you find the car you like, you can buy it without hesitation. Before the pandemic, the average vehicle sat in a car lot for 70 days before someone bought it. In 2023, J.D. Power estimates a car will sit for 29 days before it sells.
3. Get a pre-approved loan
One of the best tips is getting preapproved for a car loan. Around 85% of Americans who buy new cars use financing, so getting a loan is quite common. You can get a car loan from an auto dealer to buy your vehicle, but the process is faster and easier if you get a pre-approved loan. You can apply online through a car loan lender or a bank or credit union.
The lender will ask for the price of the car and will look up your credit report. They'll also ask if you're buying from a private party or car dealership. Your loan approval depends on your credit score, finances and car purchase price.
Lenders offer various financing options. You can buy a car with bad credit, but your loan terms won't be as favorable. You should expect a higher interest rate if you have poor or average credit scores.
No matter how good of a negotiator you are, it's almost impossible to dicker your way to a sweet deal comparable to pre-pandemic times. With that in mind, preparing for your car purchase through a loan preapproval simplifies the process. Of course, having a sufficient down payment is also necessary.
4. Take your chosen car for a test drive
While buying cars sight unseen is becoming more trendy, most cars are still sold to in-person buyers. Visiting car dealerships is a standard part of the car buying process. It lets you see your options, and you can test drive the cars you like to see how they operate and feel. You can also test the controls, feel the AC and evaluate the vehicle's exterior. These steps are integral and help you find the best one with the right sales price.
In-person car shopping also enlightens you about your options. You might find a vehicle you love that you hadn't thought of before. You can even review a used vehicle's CARFAX report. This will tell you its history, including accident records.
5. Check the warranties and ownership of your current car
Trading in a car creates a few extra steps in the car buying process. One is finding out your car's trade-in value. You can look this up before visiting the dealership for more leverage when negotiating. Next, you might also look at the warranty and wait until it expires before upgrading. Of course, it might be worth more to a dealer if it still has a warranty.
Remember: The auto market still has supply problems. So if you have a car to sell or trade in, you have a highly in-demand asset that's probably worth more than you think. Make the most of it!
Before agreeing to a dealership's trade-in offer, shop around to ensure you're getting a fair price. Check some local used car lots and dealerships to find out how much they'll give you. Also, consider listing it for sale. Selling the vehicle on your own to a buyer may seem like more of a hassle than using it as a trade-in, but you could wind up with hundreds or even thousands of dollars more by taking that extra step and eliminating the middleman.
6. Review offered deal and financing
When you pick the car you want, discuss the sale with the dealership and review the offer. Start by looking up the car's value on Edmunds, Kelley Blue Book or Consumer Reports to determine the average selling price range.
Next, look at your car loan payment to ensure you can afford it. Ask the dealer if they offer a rebate or warranty. Additionally, ask about the add-ons and perks the dealership offers to car buyers.
While dealerships aren't likely to budge on a car's price in today’s market, car shoppers might have luck asking for bonus extended warranty coverage, free oil changes and the like. Use these strategies to get a better deal.
7. Seal the deal
Car sellers have designed the buying experience to be confusing and full of pressure, and pandemic-related complications have only made things worse.
The nightmare scenario is that you want a car so badly you wind up with something impractical, uncomfortable or otherwise doesn't fit your needs. And, like everyone else in today's wild market, you overpay in the process.
To avoid that situation, consider the option to take a step back and custom order the exact model and features you want. It'll require patience — perhaps a lot of patience since this process can take several months — but you’ll get the vehicle you want in the end, rather than being forced to compromise.
Once you find the right vehicle and finalize a deal, there will be a lot of paperwork and, likely, some upselling for extra services offered by the car dealership — so more patience is needed. Finally, you’ll be able to sign the contract and wait for the salesperson to hand you the keys to your new ride.