Is Now a Good Time to Buy a Car? How to Time Your Auto Purchase

Buying a new or used car is a major financial decision. The average new car costs over $40,000 and even used cars have significantly higher prices lately. With so much money at stake, it pays to carefully consider whether current auto industry conditions make this a good time to buy.

Timing your car purchase strategically can result in substantial savings on pricing, incentives, financing etc. At other times, it may be better to wait for deals and hold off buying. This comprehensive guide examines all the key factors to help you decide if now is the right time to get your next car.

Current New and Used Car Pricing

The number one factor determining if now is a good time to buy a car is the actual sales prices you will pay. Are new and used car prices high or low compared to historical averages?

New Car Prices

Over the past year, prices on new cars have been steadily rising due to low inventory and high demand. The average transaction price for a new car as of August 2022 was $48,182 according to Kelley Blue Book. This is up 12.7% from August 2021.

Due to supply shortages, most new cars are selling with little to no discounting by dealers. Limited inventory also results in fewer rebates and incentives from manufacturers currently.

Used Car Prices

Used car values have experienced an even more dramatic surge. As of July 2022, the average used car price was $31,767 according to Edmunds data, up 8.3% year-over-year. This exceeds the previous high for used car prices.

With consumers priced out of the new car market, demand has shifted to used vehicles and driven prices up significantly. Dealers also have limited used car inventories, reducing selection for buyers.

Historical Context

To put current elevated pricing in perspective, during 2019 prior to the pandemic, average new car transaction prices were under $38,000 and used cars averaged around $23,000.

So both new and used vehicle prices are well above historical norms as of mid-2022 with no sign of declining soon. This reduces new car affordability for many buyers.

Auto Industry Sales Trends

Looking at current auto industry sales numbers can indicate if we are in a buyer's or seller's market. Strong sales favor sellers keeping prices high; weaker sales favor buyers with better deals.

New Car Sales

After a sharp rebound in 2021 from pandemic lows, new car sales have slowed in 2022, indicating a plateau in demand. SUVs and trucks still sell well, but inventories of popular sedans and compact cars remain tight.

Many analysts predict softer new car sales through the end of 2022 and into 2023 as higher prices and interest rates make purchases more expensive. Used car demand may also dampen new car numbers.

Used Car Sales

Pre-owned vehicles remain the hottest seller, with used car sales up 8.3% in July 2022 versus the previous year according to Edmunds. This sales pace is expected to continue as more consumers get priced out of new cars.

Brisk used car sales indicate demand still exceeds supply which allows dealers to keep prices high. This buyer competition allows them to turn over inventory quickly.

Market Forecast

The auto industry saw 6 straight months of sales declines in 2022 versus prior years. With inflation, recession fears, and higher loan rates, analysts expect this weaker market through at least mid-2023.

Softer sales ahead favor car buyers with better pricing and incentives as automakers compete for demand. But market adjustments take time to unfold.

Auto Loan Interest Rates

Whether now is a good time to buy also depends on current auto loan rates. Low APR financing reduces overall purchase costs.

Current Interest Rates

As of Q3 2022, average new car loan rates were approaching 5.5% APR according to Bankrate. This is more than 2 full points higher than a year ago when rates were below 3%.

Used car interest rates have also risen significantly. Average used auto loan rates were 9.5% APR as of August 2022 compared to just 6.5% in August 2021.

These interest rates increases follow overall Federal Reserve moves to raise rates to combat inflation. More Fed hikes are expected in 2022.

Impact on Buyers

At current rates, expect to pay $3,000 to $5,000 more in auto loan interest over a 5-year term versus last year. This makes financing a car more expensive.

Many buyers miss that just a 1% rate increase can cost over $1,000 more in interest on a typical car loan. These extra costs reduce affordability.

Market Outlook

Most economists expect auto loan rates will rise further in 2022 to a peak of 6-7% APR as the Fed continues hiking rates. This means financing costs will remain elevated in the near term.

Aim to maximize your down payment and secure the shortest loan term possible to minimize interest charges.

Best Time of Year to Buy a Car

Certain months and seasons during the year are better times to purchase a car from a pricing perspective. Here is what to know:

End of Year Sales

December is typically the best month for year-end sales as dealers push to meet annual quotas. Discounts on outgoing model year vehicles will peak as the new models arrive. You can often save 20-30% off MSRP or more on remaining new car inventory.

Holiday Weekend Promotions

Major summer holidays like Memorial Day and Independence Day usually coincide with big dealer sales. Expect to see increased incentives offered around these long weekends.

Low Sales Months

Late summer and early winter are slower sales times as buyers wait for the year-end deals. August, September, and October tend to have the weakest demand making prices more negotiable.

Tax Refund Season

Many buyers use their tax refunds in February and March to make a down payment on a new vehicle purchase. Dealers boost incentives to attract this early spring market.

If you can be flexible on exact timing, try to purchase during one of these seasonal promotional periods.

Expert Tips for Smart Timing

Here are some pro tips from the experts on timing your next car purchase:

• Hold out for year-end deals - This is your best chance at 10-15% below MSRP on remaining new car inventory as next year models release.
• Buy used 1-3 year old models - Biggest depreciation already occurred, so you save money with lower miles vehicles.
• Avoid paying MSRP - Only 16% of buyers paid full sticker price in July 2022, so negotiate, use incentives, and shop multiple dealers.
• Consider buying out a lease - Leverage low residual values to get lease turn-ins below market value.
• Purchase on weekdays - Weekend shoppers represent prime prospects for dealers. Weekday salespeople have more flexibility to cut deals.
• Follow the 6-month rule - Re-evaluate market conditions every 6 months if waiting for more favorable timing.

Follow this smart advice to maximize savings no matter which point in the auto sales cycle you purchase.

Model Specific Deals & Incentives

Beyond the general market trends, now can also be a good time to buy if there are specific promotions or deals being offered on the vehicle you want:

Cashback Offers

Manufacturers will often offer cash rebates of $1,000 to $3,000 or more on slower selling models to spur sales. Chevrolet, Ford, and Ram tend to offer the biggest truck incentives.

0% APR Financing

0% interest financing is rare currently due to high rates, but does still pop up. Hyundai and Kia have offered 0% loans on some models. This saves substantially on interest.

Lease Deals

Attractive lease offers lower your monthly payments. Brands like Nissan, Kia, and Subaru have routinely offered affordable lease specials to lure buyers.

Demo Vehicles

Ask dealers about pricing on untitled demo cars with very low miles. These can be substantial bargains off the sticker price since they are essentially new.

Discontinued Vehicles

When a model gets discontinued, look for big price cuts to sell remaining inventory. Call dealers to check for availability.

Follow model-specific incentives and bargains when they align with vehicles on your shopping list.

How External Factors Influence Car Buying

Broader economic factors beyond the auto industry can significantly sway pricing and demand. These should be considered to determine ideal timing.

Interest Rates

As noted, higher Federal Reserve rates increase auto loan APRs, raising borrowing costs. Try to buy when rates are at cyclical lows.

Gas Prices

When fuel prices spike, demand shifts toward smaller, more fuel-efficient vehicles which can create bargains on trucks and SUVs.

Employment Levels

In recession with high unemployment, demand will decrease allowing buyers better leverage to negotiate. Tight labor markets favor sellers.

Inflation Rates

High inflation pushes buyers downmarket to save money. This softens luxury vehicle sales but increases demand for mainstream brands.

Stock Market Performance

A strong equities market boosts consumer confidence and big-ticket purchases like cars. Market declines prompt caution.

Factor these economic influences into your timing decisions for maximum savings.

Key Strategies for Smart Car Buying

Implement these proven strategies to ensure you get the best possible deal on your next car purchase:

Shop End of Month

Salespeople have monthly quotas to hit so are more motivated to discount prices on the last days of the month.

Spread Negotiations Over Several Days

Don't buy on your first dealer visit. Make them sweat with drawn out negotiations.

Send Email Price Quotes to Multiple Dealers

Get bids competing against each other and negotiate from there. Saves time.

Test Drive the Car You Want at One Dealer, But Purchase from Another

Don't feel obligated to purchase from the dealer you test drive with.

Walk Out if You Don't Get the Price You Want

Be prepared to walk away. Many dealers will call back with a better offer rather than lose the sale entirely.

Purchase Below Invoice Price Whenever Possible

Use dealer invoice pricing data to negotiate below MSRP and the dealer's cost.

Arm yourself with these inside tips to maximize leverage in car buying negotiations.

Certified Pre-Owned (CPO) Purchase Considerations

Certified pre-owned (CPO) vehicles can represent a smart alternative to buying brand new:

Benefits

• Save 30-40% off new car price
• Still get remainder of factory warranty coverage
• Rigorously inspected used vehicles
• Low mileage models available

Downsides

• Limited CPO inventory currently
• Dealers may try to steer you to new cars with higher profit
• Less chance of negotiating below list price

Weigh the pros and cons versus new. CPO works best for luxury brands since you get certified quality at big used car savings.

Is Leasing a Better Option Currently?

Given high purchase prices, leasing is worth considering:

Pros of Leasing

• Lower monthly payments
• Drive a nicer new car than you can afford to buy
• No down payment often required
• No long-term commitment

Cons of Leasing

• Never build equity in the vehicle
• Strict mileage limits and wear-and-tear rules
• Charged for excessive mileage and damage
• Early termination fees if breaking the lease

Leasing offers lower costs of entry but less long-term flexibility. Evaluate your specific needs.

How Long Should You Keep a Car Before Trading In?

To maximize value, here are ideal ownership durations:

New Cars - Keep at least 5-6 years before trade-in. Biggest depreciation happens in the first 3 years.

Used Cars - Keep 2-3 years. Go longer if repairs and maintenance costs stay low.

Leased Cars - Turn in at end of lease term to avoid excess mileage and wear fees.

Ideally keep cars through the period of fastest depreciation before replacement.

FAQs

Below are answers to 5 of the most common questions around timing an auto purchase:

How far in advance should I start researching cars I want before buying?

Begin researching makes, models, reviews, prices etc. 1-2 months before buying. This gives you time to analyze options without rushed decisions.

When is the best day of the week and time to visit dealerships?

Tuesday, Wednesday, and Thursday evenings when the showroom is slower create the most negotiation leverage. Avoid crowded weekends.

What is the worst time of year to buy a car?

Avoid buying in the spring months of March, April, and May when demand peaks. You lose negotiating leverage.

How much below sticker price is a good deal on a new car?

Anything 8-10% or more below MSRP qualifies as a good bargain in the current market where most vehicles sell at or above sticker price.

How much should I put down as a down payment?

Aim for a down payment of at least 10-20% of the vehicle purchase price if possible. This reduces the amount financed and interest paid. Putting zero down leads to higher loan payments.

Use these key questions and answers to make optimal car buying decisions.

Summing It All Up

Here are the key points on whether now is a good time to buy a car:

• New and used car prices remain well above historical averages
• Auto loan interest rates have risen significantly and may increase further
• Mid to late summer tends to offer the best pricing during slower sales
• Aim to purchase a discounted outgoing model year vehicle at year end
• Leasing could be an attractive option to combat high purchase prices
• Carefully weigh all the market conditions against your personal situation and budget

While market headwinds exist, a smart negotiation and purchase strategy can still result in a good deal even in today's environment.

Time your vehicle acquisition carefully based on all the guidance provided. Conduct thorough research and exercise patience for optimal timing if possible. Then enjoy the excitement of upgrading your ride!

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