New York’s International Auto Show is already making waves this week with all of the industry’s latest models. And getting your hands on a new car is set to cost you a pretty penny.
Edmunds.com data shows the average interest rate to finance a new car was the highest in a decade at 6.36% in March, compared to 5.66% last year and 4.44% five years ago. If you must buy a new car, buy one with the highest projected residual value after five years.
This year “will be tough on new car buyers because average vehicle prices have climbed to an all-time high ($36,597),” says Jeremy Acevedo, manager of industry analysis at Edmunds.com. As the Federal Reserve has raised rates throughout 2018, shoppers won’t have access to lower APRs that made these purchases more affordable in prior years. “Considering a used vehicle is definitely a savvy move for shoppers this year. An oversupply of used vehicles has reduced their value and shoppers can find more savings buying used in 2019 than in the past,” says Acevedo.
Leasing a car can also cost more this year than previous terms, especially for some of the most popular vehicles on the market. Consumers interested in leasing the same car can expect to pay up to 26% more than they did 3 years ago, say Edmunds analysts.
Right now is a great time to consider used cars; there are promotional deals on certified pre-owned (CPO) cars. It comes with less risk as the car is factory-backed and checked to meet specific requirements. Purchasing a two- or three-year-old model from a dealership can be a sweet spot in terms of price and value.
For more on how to negotiate the best deal on a used car, read more below:
Prices for used cars have reached record highs recently fueled by a boom of returned leased vehicles in good condition that are now up for sale, according to Edmunds. With a healthy demand and good supply, Ivan Drury, senior manager of industry analysis at the auto site, says he expects this trend to continue as lease rates remain high, around 30%.
With the surge in supply of these two- to three-year-old cars, you could drive off with a great deal. But if you’re new to the used-car market, how do you go about buying one without getting ripped off? We’ve got you covered.
#1 Beware of prices that are too good to be true
“A two- or three-year-old used car is the best automotive buy out there because the car has already gone through its steepest appreciation hit,” says Mike Quincy, automotive specialist at Consumer Reports. However, it may be more difficult to find older cars as they’re holding their values at high rates and are in limited supply, Drury adds.
If a car is in good condition and priced lower than comparable listings in the area, be careful. Down the line, you’ll likely uncover something wrong with the car, or hidden fees on top of the listed price.
The first thing to ask for when reaching out to a private seller or dealer is the vehicle’s history report and service records. The report lists past owners, vehicle maintenance, accident history, flood damage, mileage and more. If you get a sense the seller is reluctant or unwilling to pass this along, hit the brakes. A seller should have no problem handing over the records, free of charge, if the car’s been well maintained.
#2 Check out the car in a neutral public place
When you go to check out the car in person, agree to meet in a neutral public place and try to bring a friend who knows a thing or two about cars.
Before taking the car out for a test drive, poke around the interior and exterior. Trust your senses and your gut and don’t be afraid to ask the seller questions about anything that looks, feels or smells off. “All you need are your senses, and you’re actually much better than you think,” says Quincy. If the car has suspiciously low mileage, Quincy says the best place to look is the pedals and the floor mats because a lightly-used car won’t show a lot of wear.
Know that flood-damaged cars can show up in other states — Be extra careful to avoid buying a flood-damaged car. Experts at Autoblog advise buyers to check Carfax’s free flood damage report and to be on the lookout for things like moldy and musty odors, heavy deodorant used to mask smells, discolored carpeting, rust and a buildup of water and dirt in foggy headlights and taillights.
Use your senses on the test drive, too—listen carefully for odd noises and take note of any unusual smells.
#3 Get an independent inspection
If everything looks okay up to this point, ask if you can take the vehicle to get an independent inspection from a mechanic of your choosing.
The $100-$200 will come out of your pocket, but it’s a wise investment considering you’re about to drop thousands on a car. The last thing you want is to drive away with a money pit that will require lots of repairs.
You might want to buy a certified pre-owned vehicle because it comes with less risk as the car is factory-backed and checked to meet specific requirements. If you’re purchasing a two- or three-year-old model from a dealership that provides its own inspection report, a list of reconditioning services, and a warranty, you might bypass getting your own vehicle inspection, advises Drury. But if the car is more than five years old, it’s still wise for you to take it off the lot and get it checked out.
#4 Negotiate the price
Once you’ve gotten the green light from the independent mechanic, try to negotiate a fair price based on comparable listings in your area. “Right now there is such a wide selection, you can play dealers against each other,” says Greg Migliore, editor-in-chief of Autoblog. And keep in mind that vehicles like SUVs and trucks are in higher demand as gas prices remain low.
A “reconditioning” fee should always come with records, so if that charge is tacked on, ask for documentation on the labor and replacement parts. Additional charges like dealership documentation fees vary by state, so check which fees are legit where you live.
All of this may sound like a lot of work, but just like any other investment, it’s worth doing your homework now to avoid any headaches down the line.
Jeanie Ahn is a reporter at Yahoo Finance. Follow her on Twitter @jeanie531.