Sullivan's Smart Sense: How to save money when buying car, truck
HOUSTON - If the United Auto Workers strike goes on for a while, prepare for more possible sticker shock on cars. Analysts say production slowdowns could drive both new and used car prices up again.
According to Moody's Investors Service, 7.3% of auto loan holders are delinquent on their payments, rising more than pre-pandemic levels.
And with high car prices and interest rates, Experian says the average payment is a whopping $729 a month.
Just as car prices were expected to come down, after spiking during a pandemic-era shortage, analysts say the UAW strike could push them back up.
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"So if you see a deal you like right now on a car, you really want maybe assume it might not be cheaper in six months like I said before, it could be the same or higher," said Karl Brauer with iSeeCars.com.
To save money, you don't want to buy a vehicle strictly based on the monthly payment that you're offered. AAA offers Your Driving Costs Calculator that shows you a vehicle's true cost of ownership.
Daniel Armbruster with AAA explains it factors in other costs: "depreciation, financing, fuel, insurance, licensing, registration, and taxes, and also maintenance and repairs."
The calculator shows the MSRP of a 2023 Ford F150 XL is $35,370.00, but the true cost is $0.88 a mile or $65,000 over five years. You can compare the costs of different makes and models to see how they vary in terms of fuel costs, insurance, and depreciation.
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And with auto loan rates high right now, Armbruster says, "Don’t just go with the creditor at the dealership, do your homework. Speak with different banks and credit unions. See if you can get lower rates, get pre-approved."
So how much car can you really afford?
Experts say limit it to 10% of your monthly take-home pay, and a loan no longer than four or five years. If you take home $4,000 a month, ten percent is $400 a month. Put that $400 into Nerdwallet's Car Affordability Calculator, and it says you can afford about $20,000. Add $10,000 for a trade-in, that's $30,000. Minus about 10% for taxes and fees, that leaves you $27,000 for a car.
Brauer says with prices poised to climb on both new and used vehicles again, the best bargains right now are used electric vehicles.
"If an electric car suits your lifestyle, and you're thinking of it and interested in looking at used, used electric vehicle prices are down around 30% from a year ago," said Brauer.
Armbruster also suggests shopping around on car prices, both online and by contacting different dealerships. Driving to a dealership that might be a few hours away could save you a few thousand dollars. Used cars should also be inspected by a mechanic, which can reveal any costly repairs needed before you make the purchase.