Looking for a car? Before you set your eyes on a new-to-you ride, you may want to consider whether now is really the best time to buy a car in the first place. The demand for new and used cars has skyrocketed . . . but the supply hasn’t. So, what gives? Well, for starters, microchip shortages, supply chain hiring issues, and auto factories recovering from pandemic shutdowns are just a few of the culprits.
If you’re in the market for a new car, here are a few things to consider before handing over that cashier’s check.
When Is the Best Time to Buy a Car?
Under normal circumstances, the best time to buy a car is at the end of the month and at the end of the year (when dealerships are trying to meet their monthly sales goals). But these days, what was once considered normal has gone out the window.
Sure, you could still find a great deal on a car on October 29 or December 27—but just know that the game has completely changed thanks to high demand and low inventory. All of these things have cranked up the prices of new and used vehicles. Oh, and don’t forget those sky-high interest rates!
Car inventory at dealerships was up 10% in September 2022 compared to the same time the previous year. This has brought prices down slightly, but they’re still pretty high.1 So don’t walk into a dealership to buy a new (or new-to-you) car and expect to get too much money shaved off the sticker price.
You might have better luck if you hold off until the end of the year. New cars start hitting the sale lots in the last half of the year. And if there’s any old inventory, the dealership would rather sell it to you than have it taking up space on the lot.
What Are Car Prices Like Right Now?
Car prices are breaking records and taking names. Prices have surged since the pandemic, and they just keep going up with each month that passes by.
Average price for a new car in 2022:Â $48,0942
Average price for a used car in 2022:Â $28,3373
Ouch. That’s a lot of cash to drop for your new ride. And that’s a huge reason why now’s not the best time to buy a car.
So, why are car prices so crazy high? Let’s dig into that.
Why Are Car Prices So High?
The increase in car prices boils down to the microchip shortage—you’ve probably heard about that. Basically, back when COVID hit, production on these tiny computerized chips shut down. Nowadays, almost everything runs on those microchips—yep, even cars. All those fancy buttons, doohickies and bright lights on the dash have to be powered up by something, and they rely on microchips to get the job done.
Because of the microchip shortage, there are fewer new cars to buy—which makes them more expensive because there’s not enough supply to meet the demand. So, people are switching gears and setting their sights on used cars instead. But guess what? That’s making the prices of used cars go through the roof too—up 30.3% since January 2021.4 Womp womp.
Yeah, it’s a pretty tangled web here.
Oh, and if you thought high prices were bad, there aren’t even enough of those freakin’ expensive used cars to go around!.  See, a lot of used cars on the market come from rental car companies selling cars that have barely any mileage and wear. And there’s been a shortage of rental cars ever since the pandemic, when companies sold off 770,000 cars to keep their businesses up and running.5
Dave’s easiest money-saving tip: See if you’re over paying for car insurance.
Who’d have thought we’d be living in a time when the value of your used car would actually go up? We’ll just say it—that’s weird.
Is Car Inflation Real?
In a word—yup. You better believe it. Car inflation is a real thing. All of these circumstances we just talked about created the perfect storm to inflate car prices like a shiny balloon at a birthday party. But the big question now is—when will that balloon pop? Who knows.
The price of cars actually impacts overall inflation too. The Bureau of Labor Statics shows that the consumer price index (that measures inflation) hit 7.7% in October 2022.7 The increase in new and used cars prices is part of that big spike, pouring gasoline on the already-burning inflation fire.
The Best Time to Buy a Car? When You Have the CashÂ
At the end of the day, the best time to buy a car is when you have the cash for it. Never take out a loan to buy a car. We know—that probably sounds pretty dang crazy, but car payments drain you of the money you could be putting toward your other life goals.
With the low supply and crazy high demand, now’s not the best time to buy a car. Your buying power isn’t what it used to be, and dealerships know they’ve got the upper hand. Not only that, but since they want to make money off of you, they’ve made it harder to buy a car with cash. That’s right—they want to make a sale, but they want you to finance it. Why? Because that’s where they make all their money.
Don’t do it. Wait until you have cash, and use your walk-away power to get a good deal.
Plus, the interest alone on a car loan will eat you alive. Don’t believe it? Try out our auto loan calculator to see the facts in black and white (well, the calculator’s numbers are technically blue, but you get the idea).
Let’s say you borrow $20,000 for a car with a 5% interest rate and a term of five years. You’d be shelling out $377 a month for your car payment, and on top of that, you’d end up spending an extra $2,645 in interest. And that’s if you make all those payments on time—a lot can happen in five years.
You know what’s a better idea? If you save $377 every month for two years, you’d have a little over $9,000 to buy a used car outright. Boom. No car payments. No interest. You’re free. Doesn’t that sound a lot better than throwing away almost $400 bucks on a car payment every month? Yeah. We thought so too. In the meantime, throw just enough cash at car repairs to keep your current ride up and running until you have the funds to purchase that used car.
But if you’re seriously in the market for a new-to-you car (and there’s no way to fix or repair your current vehicle), check out our Car Guide for tips on how to spot and negotiate a deal on a good used car.
Ready to budget and save for that car? Give our free budgeting app, EveryDollar, a spin. It makes it easier to stash away money for any big purchase—and it’s free. Start budgeting. Start saving. Soon you’ll be driving that car without the hassle of car payments and interest rates.
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