After a home and college tuition, buying a car is probably the largest purchase most of us will ever make. But while those first two expenses can potentially increase your financial stability over time, a vehicle will rarely appreciate. Just driving a new car off the lot decreases resale value by about 10 percent.
So, how can you score the best deal possible? For starters, before you even hit the showroom, do your homework and narrow your options. “Be knowledgeable about pricing, trade-in values, financing and even insurance,” advises Matt DeLorenzo, a managing editor at Kelley Blue Book. “Things will go a lot smoother [with] the more information you have, and dealers respect buyers who have a command of the factors surrounding a sale.”
Next, do some quick calculations to see what your monthly car payment would be, based on the price of your desired vehicle and financing plans. For example, the average new car sells for almost $34,000. Say you put 20 percent down on a car at that price, then financed the remaining $27,200 at a 3-percent interest rate for five years. Your monthly payment would equal $488.75.
If that’s too steep, cut back on options—do you really need illuminated door sills?—or consider buying a slightly used vehicle instead. On average, cars and SUVs lose around 20 percent of their value in the first year, and about 10 percent annually for a few years after that—making well-kept two- or three-year old vehicles fantastic deals for price-conscious shoppers. They’re likely still under factory warranty and nearly as reliable as a new car, but only two-thirds the cost.
In 2015, the average age of cars and light trucks (including SUVs and most pickup trucks) on the road in the U.S. was 11.5 years, according to IHS Automotive. So a toddler-aged vehicle with low mileage should still have a lot of life left in it.
“Cars are better than ever and tend to last a lot longer, with less maintenance, than cars of 10 years ago,” DeLorenzo says. “Also, after the car goes through that first round of depreciation, it tends to retain a larger percentage of its value as it gets older. You won’t see as big a falloff in the value of your trade if you buy used.”
That said, buying new could still be worth it, depending on your financial situation and priorities. You’ll get the latest safety and infotainment systems, plus a full warranty, which you might value. Just make sure you’re not overspending, which could hurt your finances for years. A good rule of thumb is to keep all auto-related costs, including insurance and fuel, under 10 percent of your annual income. (Use an online calculator if you need help figuring out how much car you can afford.)
Once you’ve finished all your pre-buying homework, head to the dealership—and prepare to negotiate. Yes, car salespeople are probably more experienced hagglers than you, but that doesn’t mean you can’t score a good deal. The salesperson may try to begin the negotiating process by asking what you’re looking to spend per month, but steer the conversation back to a fair sales price for the car. Loans can be stretched out and down payments can be tweaked in order to meet a monthly payment target, and you’ll likely pay more in the end if you allow this to be the main focus.
When you’re looking to buy can also make a difference in the kind of deal you strike. Typically, the end of the month is a good time, as salespeople with monthly quotas are more willing to negotiate then. On the other hand, a particularly difficult time to negotiate is right after a new model is introduced. “If a vehicle is hot, dealers are less likely to discount, and in some cases, a highly anticipated model can sell for above MSRP [manufacturer’s suggested retail price],” DeLorenzo says.
The absolute best time to buy, he says, is around traditional sales events, like Memorial Day and Labor Day, or at the end of the model or calendar year, when dealers and manufacturers look to clear out existing inventory.
One final tip to keep in mind: There are a lot car dealers out there. If you don’t have a good experience at one, try another. “If there’s anything that makes you uncomfortable about the deal, don’t be afraid to walk,” DeLorenzo says.