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There’s relief to be had in the new car market, but that doesn’t mean a new car is right for you.
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Any time you have a disconnect between supply and demand, the price of a given item has the potential to rise significantly. That’s what’s been happening in the automobile market. An ongoing chip shortage has resulted in a limited supply of new vehicles, forcing buyers to pay up.
But these days, there’s finally relief to be had when it comes to buying a new car. One year ago, an estimated 80% of new car buyers had to pay above sticker price, according to data from Edmunds. Nowadays, only 36% of new car buyers are paying above sticker.
All told, new car buyers paid an average of $300 under sticker prices in December. And while that relief is nice, it’s still considerably less than the $2,600 under sticker that buyers were saving on average in 2019, before the pandemic wreaked havoc on new vehicle supply.
If you’ve been looking to replace your car, you may be inclined to move forward with a new vehicle purchase now that buyers finally have some wiggle room. But is buying a new car your best bet? Not necessarily.
There are pros and cons to buying new
When you buy a new car, you get the reassurance of driving away in a vehicle that’s in prime condition. Plus, it’s common for new cars to come with a three-year or 36,000-mile warranty that protects you from having to pay for major repairs during that time. And often, it’s easy enough to purchase an extended warranty that gives you similar protection for five or seven years (or the proportionate amount of mileage) at a fairly reasonable price point.
But while buying a new car might mean not having to deal with near-term costly repairs, you’re apt to just plain spend a lot more money on a new car than a used one. In December, the average new car buyer spent $49,507, according to Kelley Blue Book. Meanwhile, Edmunds says the average used car price in December was $29,533. That’s a massive difference.
Even if you’re not buying a car outright, purchasing a used one over a new one could mean coming up with a much lower down payment and enjoying more affordable auto loan payments. And seeing as how auto loan rates are up (because all borrowing rates are up, that’s a big deal).
Plus, you might spend a lot less on auto insurance for a used car than a new one due to its lower value. You might think the opposite would be true, since a new car could conceivably be in much better shape and have more safety features. But actually, safety features don’t always lead to lower car insurance rates. Often, those features are expensive to replace, so insurers won’t necessarily cut you a break just because your car is loaded with them.
Should you buy a new car today?
If you’re not desperate to replace your vehicle right away, then it could pay to keep tabs on the vehicle market and see if new car prices continue to drop. There are benefits to buying a car that no one has owned before, but if you’re not in a major rush, why not wait things out a bit longer and see if conditions become more favorable to buyers?
It’s good to see that most new car buyers are finally paying below sticker prices. But they’re not paying that much less right now, so waiting to buy isn’t an unreasonable thing to do if your circumstances allow for it.
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