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Buying a car can be a time-consuming and even stressful experience. But being able to choose when to buy your next vehicle could give you a significant advantage during the negotiation process.
Right now is an especially good time to consider buying a car, not only due to the time of year but also because of the impact of the coronavirus pandemic. Here's what you need to know.
Why the End of the Year Is an Excellent Time to Buy a Car
Dealerships aren't shy about offering deals on their inventory, especially on new models and around holidays. But for carbuyers, the end of the year tends to be one of the best times to buy because of sales quotas.
Car salespeople typically have to meet monthly sales quotas, which makes the end of the month a good time for buyers to look for a vehicle. What's more, dealers may also have quarterly and yearly sales quotas, and all three of those coincide at the end of the year.
As a result, the holiday season historically has been a time when negotiations may favor the buyer—especially one who has time to consider multiple options and isn't in a hurry to make a deal.
How the Coronavirus Pandemic Has Raised the Stakes
Auto sales have suffered due to the COVID-19 pandemic for a few reasons. For starters, temporary shutdowns at manufacturing plants limited the supply of certain models. In the wake of those shutdowns, used car sales have thrived. But consumers looking to buy new models have dealt with many fewer options than usual.
"We're going to have an overall light inventory of 2021 model vehicles," says Melinda Zabritski, Experian's senior director of automotive financial solutions. "So, of course, you're going to have high demand, and anytime you have high demand on low inventory, we could be looking at a little less negotiation or wiggle room on pricing."
That said, the pandemic has kept demand from getting too high. Part of the reason for lower demand in general is the massive jump in unemployment due to companies laying off or furloughing their workers. Also, a whopping 42% of the U.S. labor force is working from home during the pandemic, according to Stanford University, limiting the need for many to drive on a daily basis.
Third-quarter earnings from automakers were down from the previous year, but the gap wasn't as wide as it was for the second quarter of 2020, which means the market is recovering, even if it may take a long time to rebound completely.
While the market remains down, dealers may be even more incentivized to move inventory, which could mean more deals and favorable negotiations for buyers.
Is Now a Good Time to Lease a Vehicle?
Sales quotas aren't just reserved for new and used vehicle sales—they can also apply to new vehicle leases. "From a dealer standpoint, the dealer is looking to move metal, whether it's a loan or a lease," Zabritski says.
So if you prefer to lease your next car instead of buying it, you'll still be able to take advantage of the time of year to potentially get a good deal.
Remember, though, that new car inventories are still recovering from plant shutdowns earlier this year, so your options may be more limited with leasing and new car purchases.
The Steps to Buying a Car Right Now
Just because now might be a good time to buy a car, you'll still want to go through the car-buying process responsibly. Here are some things to focus on.
Make Sure Your Credit Is Ready
One other consequence of the pandemic is that lenders have tightened their underwriting, which could make it more challenging for someone with a low credit score to get approved for a loan.
That's why it's crucial to make sure you're credit-ready for a car purchase. Check your credit score and credit report to get an idea of where you stand. Some banks, credit unions and other lending companies may also prequalify you before you submit an official application.
The prequalification process typically doesn't affect your credit score, and it can help you determine your chances of getting a loan and what the terms might look like. (This is different from loan preapproval, which will involve a closer review of your credit and could knock your credit score by a few points.)
If things aren't looking great and you could feasibly improve your credit over the next six to 12 months by making on-time payments, lowering credit card balances and other efforts, you may be better off waiting so you don't spend too much with a higher interest rate.
Do Your Research
Take some time to research the models you're considering in your area. It's especially important to do this if you can find discrepancies in pricing, which you can use for leverage during the negotiation process.
"Do your research with the manufacturers," Zabritski says. "Take advantage of additional websites that provide a lot of valuable information."
In addition to prices, also look at other aspects of the cars you're considering, such as vehicle history, mileage, model year, whether the manufacturer's warranty is still good and more.
The coronavirus pandemic has made the traditional car-buying process a little more challenging. For example, many dealerships have made changes to their policies regarding test drives.
Where these changes can benefit you is in the negotiation process. Typically, negotiation takes place in person and in real time, where a seasoned salesperson might have the upper hand. But now, you may be able to lead the negotiations online, where you can have more time to consider what the dealer is saying and to craft your responses.
Just make sure to keep a record of the conversations you have with the internet salesperson, and consider even printing it out and taking it with you to the dealership so they don't try to make last-minute changes to the offer.
Avoid Letting Emotions Drive Your Decision
Yes, the end of the year is an excellent time to buy a car, but it's not the only time during the year that you can take advantage of sales, promotions and quotas. As you consider whether to buy or lease a car right now, check your budget to determine how much you can afford to spend on a monthly payment.
Also, consider other aspects of the cost of ownership, such as insurance, fuel, maintenance and repairs—these expenses can be higher with some models.
Finally, resist the temptation to buy or lease a car if your credit history isn't quite ready for it. Sure, you can always refinance your auto loan down the road after you've had a chance to improve your credit, but you'll pay more in interest until that happens.
If you can wait before you need to buy or lease a car, monitor your credit and take steps to address potential issues. This process can take several months, but the savings likely will be worth it.