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Really Need a Car? Here’s Why You Should Buy New

SmartAsset: Really Need a Car? Here’s Why You Should Buy New

If you’ve shopped for a car recently, you’ve probably realized that a combination of tight supply and pent-up demand has squeezed car prices to record highs. Worse yet, car-shopping expert Edmunds has released data showing that new and used car prices may be jumping even higher.

So what do you do if you can’t wait two–or even three–years for car prices to come back down? Car-shopping analysts say you should compare the price differences between a used car and its new equivalent before taking the plunge. You might find out that buying new could be the better deal these days. Here’s how to do it and why a little comparison shopping could save you money over the long term.

A financial advisor could help you map out your long-term goals and determine if taking on new debt is appropriate for your situation. Find a qualified advisor today.

Edmunds Data Reveals Car Prices Are Still Squeezing Upward

A severe shortage in inventory has led to an overall rise in car prices over the past couple years and that trend seems to show no signs of stopping. In fact, car-shopping analysts at Edmunds released new data in April 2022 indicating that car prices will likely surge another 27% to 46% quarter over quarter from Q4 2021 to Q1 2022.

Prices for new cars appear to have risen rapidly as higher-income individuals abandoned luxury new vehicle leases, choosing instead to buy from the selections currently available and not wait. Edmunds data revealed that luxury vehicle leases fell from 53% in Mar 2019 to only 32% of the market by Mar 2022.

As a result, new car prices climbed to $39,340 and used car prices reached $30,830. New car monthly payments have risen an average of 13% since last year, but used car prices have broken a record, climbing to $538 a month versus $432 the year prior.

“Many car shoppers are likely seeing red when faced with the prospect of paying sticker or above sticker price for new vehicles, and are defaulting to the used market to seek relief,” said Edmunds Senior Insights Manager Ivan Drury in a press release. “But this is not a normal market, and financing a used vehicle could potentially end up costing you more in the long run.”

What Savvy Shoppers Can Do

SmartAsset: Really Need a Car? Here’s Why You Should Buy New

The increase in both new and used car prices has led shoppers to extend their loan terms, with the average loan length rising to 70.4 months. The average down payment on new vehicles also jumped 27% year over year to $6,026, whereas the average down payment on used vehicles only increased 7% to $3,574 over the same period.

However, as loan terms have gotten longer to compensate for the higher prices, buyers may not be aware of the true cost of buying used. The interest rate for financing a new car purchase fell to 4.4%, while financing a used car offers an average rate of 7.7%.

So despite the potential for lower upfront costs, buying a used car over the same loan term of 70 months would cost buyers nearly double the percentage points in interest. Furthermore, the upward pressure on resale prices means that buying a new car and selling it in the next couple years could potentially recoup some of the initial costs. On the other hand, buying a two-year-old used car at a lower price, paying double in interest and then selling it as a six-year-old car could end up costing you far more.

“That’s risky business when you consider wear-and-tear, and you could be at greater risk of needing to roll negative equity into your next car loan,” Drury said.

Prior to taking on debt, it’s always helpful to speak first with a financial expert who could plan how to best fit that expense into your long-term planning goals. If you have any large expenses planned for the near future, like buying a house, car or boat, estimating the impact of those purchases can prove crucial to your everyday cash flow.

Bottom Line

SmartAsset: Really Need a Car? Here’s Why You Should Buy New

Car prices have risen substantially over the past few years, and Edmunds has released new data indicating that prices will have risen another 26 to 46% from the end of 2021 to the end of the first quarter of 2022. Although upfront costs for used prices seem lower, over time buyers may pay close to the same amount as buying new. As a result, car-buying experts recommend that you weigh buying a new car instead of used. It may be helpful to consult a financial expert prior to tackling a large purchase such as this.

Financial Planning Tips

  • Not sure if taking on a large amount of debt will mess with your long-term plans? For a financial plan tailored to your personal goals, consider speaking with a qualified financial advisor. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Use SmartAsset’s free budget calculator to get a good estimate of how much you should spend on your car.

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