The impact of coronavirus on the auto industry has been widespread; dealership lots were filled with inventory, and Automotive World reported that production in factories “ground to a halt around the world.”
Sales of new automobiles dropped as perhaps many buckled down on finances out of fear or necessity; NBC News reported back in March—when COVID lockdowns were just beginning—that Morgan Stanley anticipated a significant decrease in automobile sales with about two million less automobiles forecasted to be sold.
What does all this mean to the consumer who may be eyeing a new car in the coming months? While consumers might not see rock bottom prices—don’t expect pennies on the dollar discounts—shoppers may be able to take advantage of dealer sales or even special interest rate promotions.
Coronavirus Leads to Lower Interest Rates?
Consumer Reports’ sub-head says it all: “Dealers and manufacturers are doing everything they can to sell cars, which is good news for the consumer.”
Dealerships near you may offer low or zero interest rates or other enticing promotions to draw in buyers right now. However, consumers should be smart about purchasing and shop around to find the best deals.
The fine print on those deals also is important. Not all buyers may qualify for zero-percent interest rates, as these rates may be impacted by credit scores. Ask questions during the buying process and see what deals/promotions may be available to you.
Timing is Essential
Consumer Reports’ article notes that great deals/financing may not be available for the long term. In fact, the publication reported that these deals could fizzle out within the next couple of months. [TB1] Consumer demand, a source noted in the article, could impact dealer offerings.
If buyers have good credit and are in a good financial position to buy a new car, delaying a purchase may not be the best option. However, consumers should not overextend their financial position just to buy now. Like all major purchases, a new car should be budgeted to ensure payments can be made on time.
What to Know Before You Shop Online or at the Dealership
So where does a buyer find the best deals? What dealership offers the best prices? Snagging the best—and maybe lowest!—prices and rates is all about research.
Buyers should ask a few questions before visiting a dealership:
- What car (make/model) is the best fit for my needs?
- How much can I spend each month on a monthly payment?
- What is the preferred loan-term length?
- What is the value of my trade-in (if there is a trade-in?)
How to Find Deals Online
In some areas of the country, dealerships still have not re-opened for car hunters. Instead, buyers can go online and find their new car. Shopping for a car online might seem a bit futuristic, but it’s really not so different than any other online purchase.
Like visiting a dealership, buying online can be a bit of a hunt. However, unlike browsing at a dealership, online car shopping allows buyers to check out the inventory at their leisure and without the pressure of a salesman.
Unfortunately, online cars cannot be taken for a test drive…unless, of course, the dealership that is offering the car is open for business. For this reason, buyers really need a good idea as to what type of car they prefer. When shopping for a car online, buyers should investigate the following:
- Mileage (even new cars may have a few miles)
- Condition (if used)
- Car History (if used)
- Interest Rate Promotions
- Interior and other Options (e.g. leather seats, upgraded stereo system, etc.)
Ideally, the site (whether a dealership or other company) should provide a slideshow of pictures of the vehicles that are for sale. You should be able to see the interior and exterior of the car, and these images should provide close-up details of any notable features. Some sites also may provide 360-degree views of the automobile.
Not sure about some of the features of a car you love online? Sites also should provide a virtual customer service rep to answer any questions you may have.
Budgeting Payments and Ordering Online
Budgeting payments is one of the most important considerations when making any major purchase. Unless you can pay for the car outright, expect to pay for the car in monthly installments. Estimate how much you can reasonably spend each month on a payment. Does your ‘dream car’ fit into the budget parameter? When buying online, you may also need to consider delivery (or shipping) fees–if they apply.
Loan term lengths also are important. Some buyers are only comfortable financing for five years. Others are fine with longer terms. A longer loan term may allow you to spend less each month on payments, but it will mean that you will pay for that car over a longer period of time.
NerdWallet advises against 72-and 84-month loan terms. Some reasons why: negative equity during the life of the loan, and, of course, paying more interest over time.
Keep in mind that you don’t have to finance the vehicle through the dealership (or online). Credit unions and other financial institutions could offer better interest rates and loan terms. Shop around and don’t commit to a loan under pressure!
A trade-in also plays a part in the purchase of a new car. If you have a car to trade-in during the purchase, you may see a bit more savings off the top of the car price. How do you know the value of your trade in? You can get a value estimate via Kelley Blue Book.
Many online dealerships provide a monthly payment estimate upfront. However, this figure is based on a specific interest rate. Your credit score may impact this estimate. You could pay more…or less. If the interest rate quoted to you by the lender seems too high, you don’t have to move forward. You could find a better rate; this means you may be able to pay less each month, and possibly pay the car off sooner with a shorter loan duration.
How to Figure Out the Budget Bottom Line
Coronavirus has left many dealerships with a glut of inventory, and you may be ready to take advantage of some great deals. How do you figure out your budget, though?
What you can spend on your car purchase—or what you can spend on those monthly payments—may be dependent on your income. See how much wiggle room you have after all your bills are paid each month. You want to be very careful not to max out your budget. If that car payment will put you in debt each month and leave you scrambling to find more cash, then take a step back. Your car payment should fit comfortably in your budget.
Money Under 30 advises not to spend more than 35 percent of your income (pre-tax income, that is) on a car. The site also provides a convenient “affordability calculator” so you can get a better idea about what you should spend.
Before you visit those dealerships or go online to shop, remember to do your research, set your budget, and understand that you can (and should!) walk away from a deal that doesn’t work for you. It’s ok to sleep on it; take your time, shop for the best rates and prices and make sure that the new car meets your needs…and fits in your budget!