Our main advice for buyers in this still tricky market is to act quickly and negotiate from an informed perspective. That can make the difference between getting a fair deal or paying too much. Also, it’s never been more important to make sure your credit is in good shape. Interest rates are up, but the most competitive rates are reserved for those with strong credit ratings.
Here are some other ways to make the best of a challenging market.
Consider buying a new car. If you’re looking at newer used cars—models in the 1- to 3-year-old range—you may find that prices are still relatively close to what they sold for new. If you have to borrow money to buy the car, it might be better to find a new one that can qualify you for a lower interest rate, to say nothing of the benefits of a fresh factory warranty. Many manufacturers subsidize financing and may offer interest rates that are much lower than usual to qualified buyers. Check dealer incentives in your area and see what’s being offered. New-car availability is improving, which is a definite plus.
Look at older models. Prices on older cars have dropped the fastest, and there are more budget models used to choose from than are currently being produced. If you go the older car route, Consumer Reports recommends looking at models known for reliability. Older cars aren’t likely to still be covered by a factory warranty. You can purchase an extended warranty or service plan, but it’s usually better to save what you’d spend on those for future repairs. The downside is that if you have to finance the purchase, interest rates tend to be higher on loans for older cars.
Prearrange financing. Figure out your budget and get financing based on what you can afford to pay monthly and as a down payment. It’s always a good idea to get financing through your bank or credit union before going to a dealership to look at cars. That way you have a baseline against which you can compare the terms of dealer financing, which may or may not be as good a deal.
As always, getting secured financing for a private-party sale is a little more difficult. You’ll need to have the funds secured and ready to pay out so that you’re able to buy a car quickly if you find one that’s reliable, fuel-efficient, and meets your other needs.
Cast a wide net. Prices outside your area may be better. You can find a good variety of used models on websites like TrueCar and through CR’s Used Car Marketplace. Expand your geographic search if you need to. Be wary about casting your net too wide, though. You want to be able to go see the car and test-drive it before signing a sales or leasing contract, especially for used cars. And with the market being as tricky as it is right now, the car you’re looking at might not be there if you have to travel too far to get to it.
Do your research. Whether buying new or used, consult Consumer Reports’ road tests and ratings, looking closely at reliability, owner satisfaction, and safety.
Make a short list of contenders for a test drive, and have a good understanding of the various trim versions and features. Print out information on the models you’re interested in from CR.org and manufacturer websites to take along with you.
Buy something reliable. If you can’t get a deal on a used car or are forced to pay a high price to finance one, you may find yourself looking at an older model that you wouldn’t otherwise have considered. CR recommends taking any used car to a reputable mechanic to have it inspected. (If the owner or dealer refuses at this request, you may be better off looking elsewhere.) You can also consult CR’s predicted reliability scores to make sure you buy something that won’t give you problems later.
Be willing to compromise. If you have to buy an older car, some of the features you want may not be available. Decide which are absolute must-haves, but be flexible on the rest. As always, you’re more likely to find deals among less sought-after models like small sedans and front-wheel-drive SUVs, while larger SUVs and pickups are likely to be more expensive and quicker to sell.
Don’t borrow too much. Put as much money into a down payment as you can afford. That will reduce the amount you have to pay in interest and reduce the chance that you’ll be left hanging as your aging car’s value sinks over the years, particularly with used-car prices still relatively high.
For example, if you have to borrow $15,000 for a used SUV that will be worth less than $10,000 in a year or two, you may end up “underwater,” or owing more than the car is worth. If you crash the car or it’s stolen, you’ll still have to make payments. Cars are depreciating assets at the best of times, but they’re likely to depreciate much more quickly if and when prices come back down to “normal” levels.
Buy back your lease. If you’re coming to the end of your lease, consider buying it back. If you signed your lease before used-car prices began going crazy early in 2021, the contract details—and all the numbers—crunching to figure out the car’s future value at the end of the lease—will have put the buy-back price well below the current market value. In other words, you can buy your own car for less than you would have if you had to buy it from a dealer.