In this article:
- Will 2024 Be a Better Year to Buy a Car?
- When Should You Buy a Car?
- How to Prepare to Buy a Car
There's nothing quite like the thrill of buying a car, especially if it's brand new. Over the past few years, however, carmakers have faced the pandemic and several other major challenges that threw the industry for a loop. While some of those issues have improved, car buyers aren't out of the woods quite yet.
Let's go over the current trends in market prices, interest rates and other factors so you can decide whether buying a car in 2024 is the right move. Here's what you need to know.
Will 2024 Be a Better Year to Buy a Car?
There are several things that can impact what you'll pay for a car. Here's a summary of some of the most influential factors and what they look like for the upcoming year.
Used Car Prices and Inventory
The pandemic created global supply chain issues that impacted several industries, including car manufacturers. As new car inventory tightened, a spike in demand for used cars caused runaway price increases in 2020 and 2021.
As new car inventory recovered, used car prices have come down nearly 13% from their high in January 2022, according to the Federal Reserve Bank of St. Louis. However, they still remain roughly 34% higher than pre-pandemic levels recorded at the end of 2019. Part of the reason for the pricing resistance is limited inventory, particularly among the most affordable vehicles.
However, the Manheim Used Vehicle Value Index, which tracks the prices dealers pay for used cars at auction—and typically translates to retail prices in the following months—continues to show a downward trend.
But while it's reasonable to expect used car prices to continue to decrease in 2024, your options may be limited to more expensive models.
New Car Prices and Inventory
New car inventory plummeted in 2021, primarily due to computer chip shortages. With demand outpacing supply by a wide margin, new car prices surged. In April 2023, average prices were 19% higher than they were two years before, according to the Federal Reserve Bank of St. Louis.
Since then, prices have leveled off, and inventory has somewhat recovered, reaching a two-year high in November 2023, according to Cox Automotive. However, the total inventory of 2.4 million vehicles remains nearly 30% lower than 2019 levels.
As new car inventory continues to recover, new car prices may start to cool. But some experts warn not to expect significant drops in 2024.
Interest Rates
The Federal Reserve has taken an aggressive approach to combating high inflation rates triggered by the pandemic, hiking its federal funds rate 11 times since March 2022. The rate impacts the prime rate used by lenders to determine interest rates for different types of short-term loans, including auto loans.
As a result, auto loan interest rates have increased drastically. According to Experian's State of the Automotive Finance Market for the third quarter of 2023, the average interest rate for new car loans was 7.03%, compared with 4.09% in 2021. For used cars, the average loan interest rate was 11.35%, up from 8.06% two years previously.
The good news is that the inflation rate has started to come down, having reached its lowest level in more than two years in October 2023. While the future remains uncertain, top economists from 14 of the largest banks in North America expect inflation to approach the Fed's target rate in 2024, resulting in the federal agency cutting its rate by 1% by the end of the year.
In other words, financing a car, either new or used, may get less expensive next year, but not by much.
When Should You Buy a Car?
If you have the luxury of waiting to buy your next vehicle, there are certain times of the year when you're more likely to get a deal. Some of the best times to buy a car include:
- The end of the month: Dealerships typically set monthly quotas for their sales staff. If you can wait until the last few days of the month, you may get lucky and find a salesperson who's motivated to work with you on a price to meet their quota.
- Certain holidays: Dealerships and manufacturers often offer rebates and financing deals on certain holidays. Popular times include Presidents Day, Memorial Day, July Fourth, Labor Day, Black Friday and New Year's.
- New model years: Shortly before a dealership receives the latest iteration of a model, it works to clear out the latest model year to make room. This can result in a variety of incentives that can save you money. That said, there's no universal time of year when new models are released, so you'll need to do some research to determine the right timing.
- Weekdays: Weekends are typically busy for car dealerships because that's when most workers have time to shop for a car. If you have some flexibility to go in on a weekday, less competition may give you an advantage in your negotiations.
- End of the calendar year: Dealerships often run end-of-year sales events that can result in significant savings. According to Edmunds, car buyers can enjoy the biggest average discount off the manufacturer's suggested retail price in December, compared to any other month.
That said, some car purchases may be more urgent than others. If you're dealing with a car that's constantly breaking down and you need a more reliable form of transportation for work or school, the best time to buy a car is now.
How to Prepare to Buy a Car
The process of buying a car can take some time, especially if you want to maximize your savings. Here are some steps to get started:
- Check your credit score. If you're planning to finance your purchase, check your credit score to gauge your creditworthiness. If your credit needs some work and you don't need another car urgently, consider taking steps to improve your score before you proceed.
- Come up with a realistic budget. Take a look at your income, expenses and savings balance to determine how much you can reasonably afford to spend on a car, including the down payment and ongoing costs. In addition to the monthly loan payment, you'll also want to consider insurance premiums, annual registration fees, fuel or electricity costs and ongoing maintenance and repairs.
- Research makes and models. Take some time to think about the features you're looking for in a car. Then, research different makes and models to get a better idea of which one would best suit your needs and preferences.
- Consider new vs. used. While the experience—not to mention the smell—of a new car is hard to pass up, make sure your expectations align with your budget. New car loans typically have lower interest rates, but they can still cost more over time due to higher sales prices. But if you can afford a higher payment and want a reliable vehicle, new may be a better choice than used.
- Shop around for loans. If you're in a hurry, you can rely on the dealer to arrange financing on your behalf. But while dealers typically send your credit application to multiple lenders, the interest rate you get may not be the best out there—in some cases, the higher rate may include compensation for the dealer. So, before you head to the dealership, shop around and compare auto loans from a handful of lenders to ensure you get the best deal available.
- Head to the dealership. Once you're preapproved for an auto loan, research local dealerships for the model you want and take note of the mileage, prices and other features. Then, head to one of the dealerships to negotiate a deal.
- Finalize your loan. Whether you get your financing through the dealership or on your own, take steps to finalize the loan, so you can enjoy your new vehicle. Be sure to note when the first payment is due and set up automatic payments from your bank account.
The Bottom Line
If you're thinking about buying a new car in 2024, understanding auto industry trends can help give you more context for what to expect. Regardless of when you decide to purchase a car, monitoring your credit regularly can give you the information you need to build and maintain a solid credit history, making it easier to save money on an auto loan.
In addition to comparing auto loans, it's also a good idea to shop around and compare auto insurance coverage and costs to ensure you're saving as much money as possible on your next car.
