Imagine buying your first car during the worst car market in recent history.
Inventory shortages and rising prices started the pandemic-induced shortage of computer chips in 2021. As of May this year, the supply of new vehicles available to buy was about 1.1 million — or about 1.7 million less than in 2020 — according to the automotive market and data company Cox Automotive. The average transaction price rose to $47,148, up from $5,000 from a year ago, as most buyers paid more than the sticker price. The average price of used cars remained near record levels of $28,312, with some models fetching higher prices than new.
First-time car buyers have long been guided by Internet stories and the experiences of their friends and relatives. What’s it like to shop when those rules no longer apply?
For Kevin Nguyen, it meant buying his first car when traditional car buying advice went out the window. Nguyen — whose job as a data analyst led him from public transportation in Toronto, Canada, to a car in Austin, Texas — said in an email: “Everything I knew about cars, especially the depreciating part of assets, was no longer true today.”
He added: “Cars were more expensive than their original purchase price, even when used with thousands of miles for several years.” Nguyen said this was a pretty expensive option and buying new wasn’t much better. “Dealers had no idea when they would get inventory. I was quoted at the end of the summer of 2022 when I inquired in November 2021,” he said.
But Nguyen found the vehicle he needed, as did early car buyers Ben Johnson, of Evansville, Indiana, and Ellie Morris, of Nashville, Tennessee. All shared what they learned along the way.
Do not miss: Car quality is declining: these are the brands with the most and least complaints, research finds
Prepare before you go shopping
With the current car shortage with dealers at the wheel, it is important to arm yourself with knowledge. Nguyen, Johnson and Morris all used online car dealerships such as CarMax KMX,
and Vroom VRM,
to research car prices and different makes and models before ever approaching a dealer.
Nguyen used online retailers to “get a general idea of how much cars would cost.” Using this benchmark price, he then approached local dealers to see what stock was available based on his preferences for a Hyundai HYMTF,
Elantra or Honda HMC,
Johnson’s plan to use a car given to him by his parents after earning a degree in physical therapy and Ph.D. took a detour when the vehicle developed mechanical problems. Needing a car right away, he used online sites to quickly research must-have features, fuel efficiency and safety ratings for his next car.
For Morris, it was time to replace her old car after graduating from college and landing a job at a strategic communications company. At her father’s suggestion, Morris used the CarGurus car buying app along with other online sites. In fact, she credits the app for helping her find the 2017 Ford F,
Edge Titanium bought them from a local dealer in May.
After finding the car, she returned online to confirm she got a good deal. She says: “A lot of other Fords like this, their mileage was much higher and the price was a lot higher, even though they were pretty much the exact same car. So we quickly found out that this was definitely the best deal we could find.” .”
Read: These are the cars that cost the most and the least to insure
Make your financial plans
Another important aspect of preparation is establishing a budget so that you can determine a price range and avoid overspending. Johnson, those are first car loansays the money side of buying a car was the hardest.
Even though he had saved up to buy a car after graduation, he wasn’t ready to buy one. He had to make some financial adjustments to fit a car payment into his budget, such as swapping a gym membership for exercises in his apartment.
Experts recommend paying less than 10% of your take home in a monthly car payment and less than 15% to 20% in car expenses overall, including gas, insurance, and maintenance. An auto affordability calculator can help crack these numbers.
To reduce the amount he had to borrow and get a better interest rate, Johnson used the money he had saved and traded in his existing car to make a sizable down payment. At the dealer’s recommendation, he carried out repairs to his existing car to increase the trade-in value.
Whenever possible, car buyers should aim to pay 20% of the purchase price for a new car and 10% for a used car.
Johnson financed through the dealer and felt he received a good loan rate, but says he wishes he had more time to shop around. “It’s possible I could have gotten a cheaper deal,” he says, “but I was a little frustrated and I really needed a car.”
It is always a good idea to get pre-approved for a car loan before you go shopping. Most credit unions and banks offer pre-approved auto loans, and many credit unions have: first car buyer programs to help those without extensive credit histories qualify. Taking that pre-approved loan to the dealer gives them a rate to beat. For first-time car buyers, drafting a loan co-signer can also help get approval and lower interest rates.
Related: As car prices continue to rise, these two electric cars have just undergone a major price cut
Be fast and flexible in this car market
Being able to get a car fast enough before someone else had one was a challenge all three car buyers said they faced. The research they did beforehand and the advice of parents or other more experienced car buyers increased their comfort in making quick decisions. Flexibility was also key.
Johnson’s first choice was a Toyota TM,
RAV4, but after finding none available within a two-hour drive, he began visiting local dealers for other brands with his list of must-haves in mind. He ended up buying a 2022 Hyundai Kona.
“Once I rode the Kona, it did everything I wanted in the RAV4,” he says. “I had never seen Hyundai as a brand before. So it is now six months later and I am still enjoying the vehicle to the fullest. I don’t know if I would have enjoyed the RAV4 as much as my car now.”
After determining that local dealers would not have the brands he wanted for at least six months, Nguyen returned online to purchase a 2020 Hyundai Elantra SE.
“I went back to online websites like Carvana and CarMax and checked the website almost four times a day,” he said. “The Hyundai I ended up buying was priced quite low and I immediately contacted CarMax to arrange a viewing. The car itself has no problems, with a flawless inspection and only 10,500 miles, so I was very happy.”
Do not miss: These cars are cute and cheap, and no one else has them – how can you get one?
Nguyen’s final advice on finding a car: “If there’s a deal, just go for it. Being indecisive costs you a lot of money, because someone else picks it up right away.”
More from NerdWallet
Shannon Bradley writes for NerdWallet. Email: [email protected]