The current market is constantly changing, making it seemingly not easy to buy a new car in the United States. Faced with a complex and tedious process, and constrained by high new car prices and loan interest rates, how should consumers go about purchasing? Experts offer some advice.
More and more data shows that affordable used cars are rapidly disappearing from the American market. In the new car market, manufacturers prioritize higher-priced models and upscale interiors, leading to skyrocketing new car prices, with an average selling price of around $50,000 and loan rates maintaining at about 7%.
So how can you purchase a new car at a discounted price? Experts from the American nonprofit consumer organization “Consumer Reports” offer some car buying strategies.
Gabriel Shenhar, Deputy Director of Automotive Testing at Consumer Reports, pointed out that if consumers are buying a brand-new first-generation or redesigned model, especially highly anticipated models, they should be prepared to potentially pay more than the Manufacturer’s Suggested Retail Price (MSRP).
Moreover, he said: “Remember, buying a first-generation model often encounters more issues because manufacturers have not had time to address all the defects. The smart move is to wait at least for the second year of the model to be released before making a purchase.”
If you need a car loan, it is best to plan ahead as there are many loan options available in the market. Sometimes, dealer loan terms may include manufacturer subsidies with lower rates than banks. Therefore, the first step is to determine your budget, and then based on the amount you can afford monthly and the down payment, choose the appropriate car loan.
Secondly, before visiting the dealership to look at cars, it’s best to apply for loans from multiple banks or credit unions and get pre-approval. This can serve as a reference point for comparing the loan conditions offered by dealerships and selecting the best loan rate. Pre-arranging loans also helps in quickly securing sought-after car models.
As interest rates continue to rise, Consumer Reports experts recommend consumers to make a higher down payment whenever possible: consider paying at least 15% down; if financially feasible, paying 20% to 25% down can save a significant amount on interest.
Experts say that the best rates are offered to buyers with good credit, so if a consumer’s credit score needs improvement, it is especially important to make a larger down payment.
When purchasing a new car, compare prices. Shenhar advises, “Do your homework, understand the difference between dealership prices and Manufacturer’s Suggested Retail Price, and then search for prices of two or three cars on the manufacturer’s official website or reputable authority websites.” If local dealerships do not have the car you want, it’s better to search online or call different dealerships to inquire about inventory.
Next, check the manufacturer and dealership websites to learn about discounts at local and nationwide dealerships, such as cash discounts, low or zero-interest loans, and leasing offers with lower monthly payments.
If consumers are willing to consider some lesser-known models such as sedans, hatchbacks, or front-wheel-drive SUVs, they can often find some very good discounts.
Many consumers opt for trading in their old cars for new ones. Experts suggest that while dealerships also accept trade-ins, the trade-in value often falls short of expectations.
A recent Consumer Reports survey found that selling old cars through the largest used car suppliers in the U.S., such as CarMax or online car sales websites like Carvana, often results in higher selling prices.
Since the start of the pandemic, buying cars at a premium seems to be a trend, with consumers sometimes needing to pay much higher prices than the MSRP. Consumer Reports experts caution consumers against overspending, as vehicles depreciate and paying too much for a new car may exacerbate future losses.
For example, if a consumer pays an additional $8,000 to buy an SUV, and three years later intends to trade it in, with the SUV’s value now $15,000 less than the initial MSRP, the consumer would have paid $23,000 for the car over just three years. People wouldn’t want to finance a heavily depreciating car for the next few years.
On July 4th, President Trump officially signed the Comprehensive Tax Reduction Act (also known as the “Big and Beautiful Act”). This law increases tax deductions for auto loan interest, making any new car purchased after January 1, 2025 eligible for the deduction.
The law stipulates that a household can receive up to $10,000 in tax deductions for new car loan interest annually. This deduction is temporary, running from 2025 to 2028. Applicants must meet income criteria, and the new car purchased with the loan must be assembled in the U.S.
Experts remind consumers not to solely judge whether a car is assembled in the U.S. based on the emblem on the hood; it is crucial to carefully check the final assembly location on the window sticker.
Considering purchasing an electric vehicle, consumers are advised to act quickly as the federal government’s maximum $7,500 tax credit for electric vehicles will expire on September 30th. However, state and local tax credits may still continue, so consumers should check with local governments to find out if they can enjoy other benefits.
Finally, Consumer Reports experts emphasize not letting cost savings affect personal judgment: only cars that meet conditions and are safe, reliable, and satisfactory are worth buying. ◇
(The content is for general information only, with no recommendation or solicitation intentions. Dajiyuan does not provide investment, tax, legal, financial planning, real estate planning, or other personal finance advice.)