You want to buy a car? Cool. But first, you’ll have to grab a number and get in line with the rest of America. The demand for cars is insane right now (psst . . . if you have one to sell, now is the time to do it).
So, why are cars the hot thing to buy? Well, it’s all thanks to the microchip shortage, factories recovering from pandemic shutdowns, and people with cash to burn—to name just a few things. Yeah, it’s not really the best time to buy a car right now. Between used cars hitting their highest prices ever and the lack of new cars on the market, things have gone bonkers. We’ll get to all of that in a minute, but first up—is there ever a good time to buy a car?
When Is the Best Time to Buy a Car?
Under normal circumstances, the best time to buy a car is at the end of the month and at the end of the year. But these days, normal has gone out the window. Sure, you could still find a great deal on a car on September 29 or December 27—but just know that the game has changed thanks to high demand, supply shortages and low inventory. In March 2021, car inventory at dealerships was down 36% compared to 2020.1 Still, if you’re in the market for a car, it’s worth it to go shopping around these times and give it a shot.
Dave's easiest money-saving tip: See if you're over paying for car insurance.
If you’re buying from a dealership, those sales people are staring down the barrel of meeting their quota by the end of the month. That means they’ll be more likely to cut you a deal as the end of the month inches closer. And if you can hold off until the end of the year—even better. New cars start hitting the sale lots in the last half of the year, and once they arrive, that means there’s old inventory that the dealership needs to ditch pronto.
What Are Car Prices Like Right Now?
Car prices are breaking records and taking names. Prices have surged since the pandemic, and they just keep going up with each month that passes by.
Average price for a new car in 2021: $40,8272
Average price for a used car in 2021: $25,4633
Ouch. That’s a lot of cash to drop for your new ride. Hint—it’s not the best time to buy a car right now. Some of the biggest reasons for these price jumps come from the usual suspects: pent-up demand from folks who didn’t make big purchases during 2020 and people with stimulus money and extra savings to spend. But some reasons for the price rises are specific to new cars versus used cars. Let’s dig into that . . .
Why Are New Car Prices So High?
It all boils down to the microchip shortage—have you heard about that? Basically, back when COVID hit, production on making these tiny computerized chips shut down. Nowadays, almost everything runs on those microchips—yep, even cars. All those fancy buttons, doohickies and bright lights on the dash have to be powered up by something, and they rely on these microchips to get the job done.
Because of the microchip shortage, there are fewer new cars out there to buy—which means people are switching gears and setting their sights on buying a used car instead. But guess what? That’s making the prices of used cars go through the roof.
Why Are Used Car Prices So High?
Believe it or not, that microchip shortage spills over and impacts used car prices too. Why? Used cars are in demand because people can’t get access to new cars because of the microchip shortage. So they’re having to shift gears and set their sights on buying used. Yeah, it’s a pretty tangled web here.
Still, that would all be fine and dandy if there were enough used cars to go around. But there aren’t. See, a lot of used cars on the market come from rental car companies selling cars that have barely any mileage and wear on them. And there’s been a shortage of rental cars ever since the pandemic, when companies sold off 770,000 cars to keep their businesses up and running.4
Since June 2020, the price of a used car has spiked 45%.5 That might be music to your ears if you’re ready to sell your used car, but it’s bad news if you’re in the market for buying a used car right now. Used car prices are higher than ever, and the price paid for pre-owned vehicles just hit an all-time record of $25,463.6 That’s the first time the price has even cracked the $25K mark. Who would have thought we’d be living in a time when the value of your used car would actually go up? Let’s just say it—that’s weird.
Is Car Inflation Real?
In a word—yup. You better believe it. Car inflation is a real thing. All this high demand, supply shortage and low inventory created the perfect storm to make car prices inflate like a shiny balloon at a birthday party. But the big question now is—when will that balloon pop? Who knows.
And the price of cars actually impacts the bigger issue of inflation too. The Bureau of Labor Statics shows that the consumer price index (that measures inflation) hit 5.4% in June 2021.7 And remember, the cost of used cars has gone up 45% in the last year—that’s the largest 12-month jump ever on record.8 Needless to say, that big spike basically poured gasoline on the already-burning inflation fire.
The Best Time to Buy a Car? When You Have the Cash
At the end of the day, the best time to buy a car is when you have the cash for it. Never take out a loan to buy a car. We know, that’s pretty dang countercultural, but car payments zap you of money you could be putting toward your other goals. Plus, the interest alone will eat you alive. Don’t believe it? Try out our car payment calculator to see the facts in black and white.
Let’s say you borrow $20,000 for a car with a 5% interest rate and a term of five years. You’d be shelling out $377 a month for your car payment, and on top of that, you’ll end up spending an extra $2,645 in interest. And that’s if you make all those payments on time—a lot can happen in five years.
You know what’s a better idea? If you save $377 every month for two years, you’d have a little over $9,000 to buy a new-to-you car outright. Boom. No car payments. No interest. You’re free. Doesn’t that sound a lot better than throwing away almost $400 bucks on a car payment every month? Yeah. We thought so to.
Ready to budget and save for your new car? Give our free budgeting app, EveryDollar, a spin. You can upgrade to Ramsey+ and get the premium version of EveryDollar, plus loads of teaching and resources to help you stash away money to buy your next car.