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If you’re in the market for a new car and hoping to score a huge holiday deal, you may want to temper your expectations.
While you might be able to find some Black Friday sales and end-of-year specials, they are neither plentiful nor generous this year, said Joseph Yoon, consumer insights analyst for Edmunds, an auto research and car-buying site. Couple that with elevated auto prices and the high cost of financing, and the purchase could be more painful than you anticipated.
“I think a lot of buyers may be a little disappointed,” Yoon said.
Inventory is up, but discounts are down
At the same time, Yoon said, there’s ample inventory. After pandemic-era supply chain snags and manufacturing slowdowns led to lasting shortages starting in 2021, there’s now a broader selection on dealer lots for buyers to choose from.
“After the greatest inventory crisis the market had ever seen, the inventory is back … which matters especially when it comes to seeking a deal,” Yoon said.
The average manufacturer’s suggested retail price on new cars reached $51,345 in October, according to Edmunds. That sticker price is down slightly from September’s average of $51,434 — when expiring tax credits for electric vehicles caused a surge in EV purchases — and is 3.9% higher than a year ago.
However, the actual price paid averaged $49,105, meaning the average discount was $2,240, Edmunds data shows. While dealer incentives have risen slowly since disappearing in 2021 and 2022, when many buyers paid above sticker price due to inventory shortages, those deals still have not returned to pre-pandemic levels.
In December 2019, the average sticker price was $41,696, and the typical price paid was $38,669 after an discount of $3,027, according to Edmunds.
Buyers whose last car purchase was years ago “may be surprised to find both prices and payment terms much higher than they remember,” said certified financial planner Stephen Kates, a financial analyst for Bankrate.
Don’t shop ‘solely on the monthly payment’
The typical monthly payment for a new car nudged up in October to $766, up 0.4% from September and 1.2% higher than a year earlier, according to research from Cox Automotive. The average monthly payment peaked in December 2022 at $795.
At the same time, 22% of buyers are getting into loans that stretch seven years or longer, according to Edmunds. While doing so can lower the monthly payment, it also generally means paying a higher interest rate and more interest over the life of the loan.
“Consumers should be cautious about shopping based solely on the monthly payment,” said Kates.
By way of example: An eight-year loan more than doubles the total interest paid over the life of the loan compared with a four-year loan, he said.
The average interest rate charged on a five-year new-car loan is 7.07%, according to the latest data from Bankrate. For a four-year used-car loan, the average is 7.52%. However, that rate can vary wildly depending on your credit score. The lower your score, the higher the rate.
“Just three years ago, rates were about more than two percentage points lower,” Kates said. The difference between a 5% and 7% interest rate on a $30,000 auto loan translates into about $336 more per year in interest, he said.
There are ways you can lessen the financial sting of a new-car purchase. For instance, cars that have been sitting on a dealership’s lot for at least a couple of months are likely to be candidates for negotiating a better deal, Yoon said.
“Looking at cars that have been on the lot a little longer might be the most helpful tool in your toolbox,” he said.
“The perfect trifecta would be a car that the manufacturer has a discount on, it’s been sitting at the dealership for quite some time and it’s a car you really like,” he said.
If you have a trade-in car that’s in good shape and it’s paid off, that also will bring down the amount you need to finance, Yoon said. However, don’t count on getting much for a “vehicle you’ve had for 15 years and is on its last leg,” he said.
