Buying a car is a big decision. Before you jump into purchasing one, check out three questions you need to ask yourself.
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Are you thinking about buying a car? Vehicles can be expensive to purchase, with the average price of a new car coming in at $48,275 in April of 2023. They’re also a necessity for many people, as cars are typically needed to get to work, take care of loved ones, and fulfill basic life tasks in many parts of the country.
Before you jump into buying a new car, though, there are three questions you should ask yourself.
1. Do you really need a new car for a vital reason?
The first and most important question to ask yourself is whether the purchase of a new car is a true necessity or not.
If buying a car is vital to keeping your job, getting your kids to school safely, or accessing medical appointments, then you will likely need to figure out how to purchase one no matter what. This may be the case if you live in an area that’s not walkable and has minimal public transportation, and if something happened to your old vehicle that renders it unsafe or undrivable.
Even if buying a car is not absolutely vital, you may still want to purchase one anyway. But you’ll have several more questions to ask yourself to make an informed choice.
2. Are you in a financial position to purchase a vehicle?
The next thing to think about is whether you are in a financial position to buy a car.
Cars are depreciating assets, which means their value declines over time. It’s best not to take out a loan to buy one, as doing so makes your purchase more expensive. You’ll get stuck paying interest for an item that’s immediately worth less than you paid for it.
So, ideally, you’ll have the cash to cover the entire purchase of the vehicle. If you do have the money on hand and using it won’t impact any of your other financial goals, then you likely should go ahead and get the car.
Most people don’t pay all cash for cars, though. If you aren’t planning on doing so, you will need to make a down payment when you purchase a new vehicle — even if you get an auto loan. This typically ranges between 10% and 20% of the car’s value, so if you were buying a $48,275 car, you’d be looking at between $4,827 and $8,655 down. If you don’t have money to put down, you should try to wait to buy a new car until you do.
If you’re borrowing to buy, you’ll also have to be ready to make car payments. Consider what those payments will be and how they will affect your budget and your ability to do other things with your money, such as investing with a brokerage firm. If you can’t afford to accomplish other goals with a car payment on a new vehicle, then now probably isn’t the best time to buy.
3. What is the current state of the car market?
Finally, it’s worth considering the state of the car market to help you decide if it’s a good time to buy.
The average price of a new vehicle is still higher than it was a year ago. However, Kelley Blue Book reports that prices have stabilized in the new car market and more dealers are now offering incentives to entice people to buy. This is a far more positive environment than during the heart of the pandemic, when new cars were extremely expensive and many dealers were selling vehicles for above MSRP.
The average used car price is not declining, though — instead, it’s increased for the past few months. And this is likely to be a persistent trend, as manufacturers built an estimated 8.1 million fewer cars during the pandemic than they normally would have. That’s a lot fewer cars to reach the used market and help bring prices down.
With fewer used cars available and demand still high, car buyers can likely expect prices to remain elevated for a while. Since used cars are usually a better deal than new cars and since prices are still elevated here, it may be worth holding off on a purchase for a while until costs start coming back down. Just be aware, this might take years — so if you really want a car and have the money to buy one soon, waiting may not be a viable option.
By taking each of these issues into account, you can make the choice that’s right for you about whether to buy a new car.
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