Don’t buy a car right now.
Car prices are at unprecedented levels. Used cars are selling for up to 40% more than they were in February of 2020. New cars are selling for more than the manufacturer’s suggested retail price (MSRP). Cars tend to be emotional purchases. We envision a version of ourselves riding in a particular car. For some, their car establishes their worth to others and is a sense of pride. This emotional connection to cars tends to cause people to make irrational purchases that don’t better their financial situation. Cars are some of our largest assets and also assets that (usually) only depreciate.
For our entire relationship, my husband and I have each had our own car. When we both worked in offices in different parts of the city, this made sense. We had to be at different places at different times. But, for the past year and half, we have mostly worked from home and we have entirely relied on just one vehicle. We have had two cars, but we only drove one. We neglected to drive one car so much that the battery died and we could only drive one car. Finally, after a year of debating whether to sell our car, we sold it.
I looked up the value of the car on Kelly Blue Book (kbb.com) and got an estimate of how much I would get for the car if I sold it in a private sale or to a dealer. A private sale has significant upside - you can make a lot more money selling a car privately. A benefit of selling it to a dealer is that it is very little work - you show up with the title and sign some paperwork. I decided to sell the car to a dealer (sometimes we choose convenience!). While at the dealership and visiting with the salesman, I learned that cars he would have sold for $10,000 a year and a half ago, he is selling for $16,000. To demonstrate further how crazy the car market is right now — we got $3,000 more selling it now than the estimate I got a year ago.
Now is simply not a great time to buy a car. You will pay much more than the car is worth. We will hope that the market with balance out in time, and there is evidence to suggest that eventually it will. Until then, if you can, wait.
If you MUST buy a car right now, what should you do?
If you have a lease that is ending soon, consider buying out the car at the end of the lease. When you signed your lease, there was a guaranteed buyout price. If you signed your lease before February 2020, the price is probably more reasonable than the same car on a lot right now.
Look to buy from an independent seller, instead of a dealer. Dealers markup the cost of a car more than an independent seller. It is completely appropriate to ask the independent seller to have your mechanic look at the vehicle before you decide to buy it.
Be willing to buy a car with fewer features. For most people, a car should only be to get you from A to B safely and reliable. Unless you have a really high net worth, cars should not be a large part of your assets.
DO NOT FINANCE A CAR. When prices eventually normalize, you might be upside down on a loan if you finance.
Would the current car you’re driving run a little smoother, or would you feel better about it, if you just did a little maintenance? For us, our one car desperately needs a good cleaning, a new windshield, and a few dings repaired. Spending money on deferred maintenance might make more sense that buying a new (or used) car right now.
Do you have two cars? Could your family make do with one?