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Many people want to buy cars this summer, but limited supplies are pushing up prices for new and used cars alike. If you're in the market, you may find it's difficult to get a good deal or find the exact vehicle you want. And, unless you need a new vehicle right away, it might make more sense to wait.
Is Now the Right Time to Buy a Car?
For many people, right now is not a great time to buy a car. Decreased production due to the pandemic—among other factors—has led to shortages for many popular new vehicles. At the same time, there's increased demand from businesses and consumers. The result is high prices and limited selection.
Auto loan balances were already on the rise in 2020 compared with the previous year. Borrowers in about a third of the country saw an average balance increase of over 5% from 2019 to 2020, according to an Experian auto loan debt study. These average balances may go even higher as vehicle prices rise.
Some people may need or want to buy a car right now, regardless of the current market. Or, you may find that despite the potential drawbacks, it's actually a good time based on your personal circumstances. If you're considering buying a car in the near future, take a look at the pros and cons first.
Why Now May Not Be the Right Time to Buy a Car
If you don't need a new car right now, waiting might make sense. That said, it's not clear how long it'll take for prices and inventory to return to normal.
Prices Are Sky High
Mismatched supply and demand has led to high prices for new and used cars alike.
On the demand side, some people are flush with cash and looking to buy a vehicle for a return to commuting or vacations they may have put off during the pandemic. Additionally, rental companies that sold off fleets during the pandemic are also trying to fill up their lots to meet vacationers' needs.
On the supply side, many auto manufacturers are dealing with shortages and delays. In particular, there's a microchip shortage that may last for months—and potentially much longer. Hundreds of thousands of vehicles are being delayed due to the lack of chips. In some cases, manufacturers have vehicles almost completely assembled, but they're sitting in lots waiting for the chips to be installed. According to Car and Driver, the models most affected by the shortage include the Ford F-series, the Jeep Cherokee and the Chevrolet Equinox, though many other makes and models have been impacted.
A June 2021 forecast from J.D. Power and LMC Automotive shows the average price for a new car is expected to be $38,088. That's about 10% higher than last year and about 14% higher than in 2019.
In addition to pushing prices up, the increased demand and limited supply may make it difficult to find the exact vehicle you want. This is especially true if you're looking for a new truck or SUV, which tend to be more popular than other vehicle models.
It can also be difficult to find affordable used cars today. Consumers may be turning to the used market when they can't find a new vehicle they like or can afford. Rental car companies are even snatching up used cars—a complete shift from the standard practice of selling off the older vehicles in their fleets.
There have also been fewer repossessions, which further limits the availability of used cars. And the Great Recession is having a lingering effect, as there are fewer available used cars from the 2009 to 2013 period.
Limited Dealer Incentives
Dealers often offer incentives to customers buying new cars, such as low-rate or 0% financing offers, lease specials and cash discounts. Generally, you need to finance the purchase with the manufacturer's financing arm and have good to excellent credit to qualify.
But even those who would usually qualify may find there aren't as many incentives available. J.D. Power's June 2021 report shows average incentives per unit are expected to be $2,492—a nearly $1,500 decrease from June 2019.
Why Now May Be a Good Time to Buy a Car
If you know you'll need a new car within a few months, it might make sense to act sooner than later.
You May Have More Options Now Than Later
While there's limited supply today, there may be even fewer options in the coming months. If you have your eyes set on a specific new vehicle, grabbing it now may be the best option. However, if you're open to various makes and models, don't feel pressured to act quickly.
Financing May Be Affordable
You might not make a lot of headway with negotiations right now, but there are some financing incentives available for new cars. If you don't qualify for 0% financing or aren't planning on financing a new car, you may still want to lock in a low rate just in case your needs change.
You Have a Used Car to Sell
High prices for used cars can work in your favor if you have a vehicle to sell or trade in. You may even get a great offer from a dealership, breaking the traditional rule of thumb that private sales are best. With such a high demand from used-car buyers, be sure to get at least several offers.
What to Look for When Buying a Car
If you're just starting to think about buying a car, here are a few things you'll want to consider. (Also see our step-by-step checklist if you're buying a new car.)
- New or used: You'll have to navigate through the limited supply whether you're buying new or used. Buying a used car can often save you money, even if used cars are more expensive than they used to be.
- Buy or lease: Another option may be to lease a vehicle. Leasing often isn't considered a financially prudent option, but leasing a car for a few months or a year and then looking for a new car when the market settles might make sense if you need a car right now.
- Vehicle type: If you're open to a wide range of makes and models, you'll have a much easier time buying a vehicle right now. If you can take advantage of tax credits and rebates, a hybrid or electric car could be a good option.
- Features and reviews: Whether you're buying used or new, consider the features that come with the vehicle and reviews about the specific make and model. If you're buying used, you can review a vehicle history report.
Finally, buying cars online has become more common. Dealers may even deliver a vehicle to your door for a test drive or after you make a purchase. But do your homework first and watch out for online car-buying scams.
How Does Buying a Car Impact Your Credit?
Buying a car will only impact your credit if you finance the purchase. Often, you'll see multiple hard inquiries as you shop for a car loan. But don't worry: Many credit scoring models will count them as one inquiry if they occur within a 14-day period. Then, the new car loan will appear on your credit report as well.
While you might see an initial dip in your credit scores, making your payments on time can help you build positive credit. If you want to check your progress, you can sign up for free Experian credit report monitoring online.