As we enter what is traditionally one of the top times of the year for buying a new vehicle, it’s hard for the average person to figure out if the pandemic has created a real buying opportunity or thrown up a big stop sign.
Several trends have emerged. First, and not surprisingly, more people are interested in driving their own vehicle as opposed to using more public-oriented transportation options. According to Auto News, 93 percent are using their personal vehicles more than pre-pandemic. And while not as nimble as having a pair of shoes delivered to your doorstep, vehicle “distance-shopping” trends have emerged: digital showrooms, online configuration tools and at-home test drives, to name a few.
Is now a good time to buy, though? The year’s-end rollout of new models and dealers’ desire to lighten pandemic-bloated inventories could lead to downward pressure on vehicle prices. However, like the answer to similar timing questions, the real answer lies in your own situation.
• Is it a need or a want? You may have heard the story of the shopper who went broke buying things on sale. This cautionary tale hasn’t resonated with my kids, but it’s worth considering as you ponder a potential vehicle purchase. With so much uncertainty, I’d fight the urge to outfit yourself with new wheels just because it looks like a good deal. In good times or bad, cars tend to depreciate.
• Does it fit my budget? Obviously, that’s a question that will vary based on your situation and if you’re like millions of Americans, you may have run into some financial challenges in 2020. If your job situation is solid and you can cap all your transportation costs at 10 percent of your gross income, you should be on track. That includes gas, maintenance, insurance and the like. That’s probably a lot less than many spend, but my goal is for you to have less financial stress and more flexibility, especially today.
• Can I get a competitive interest rate loan? Over the years, I’ve run into a lot of people with double-digit interest rate car loans. That might have been reasonable in 1985, but it’s not acceptable in today’s extremely low interest rate environment. That’s especially true with all the manufacturer financing offers available today. If your credit history keeps you from qualifying for anything but that type of loan, you should buy nothing but bare-bones transportation while you work to bump up your score.
• How long will I be paying? Remember, the longer the term of your loan, the more you rack up in interest and the more likely you’ll be upside-down. Yes, that means the eight-year loan you’re looking at in order to squeeze too much car into your budget is a bad idea, even if it’s low-to-no interest. Shoot for a loan of five years or less.
• Does this vehicle fit my lifestyle? Earlier this year – and, thankfully, we didn’t pull the trigger – my wife told me she was ready to turn in her SUV in for a sporty new coupe. Within the next half-hour, we were discussing our plans to go pick up our grandkids and all of their stuff for a weekend with us. There’s enough room for only one coupe in this house, and my paid-for vehicle is it. The point? Buy something you can drive for an extended period of time, not something you’ll quickly regret.
So, to finish with an answer to the question we began with: a new car may be a good idea, but only if it makes sense in the context of everything else going on with your life and finances.
J.J. Montanaro is a certified financial planner with USAA, The American Legion’s preferred provider of financial services. Submit questions for him online.