By Tiger Okeley, Executive Board Member, Oak Motors, A Buy Here Pay Here Used Car Dealership
The car market has been on a rollercoaster ride over the last few years, creating challenging conditions for consumers. First, pandemic disruptions to the global economy caused industry-wide inventory shortages. As a result, prices of new and used cars rose to historic highs. To make matters worse, the pandemic’s economic disruption also fueled inflation, which the Federal Reserve fought by raising interest rates. So, not only are car prices more expensive than ever, but the cost of financing a new or used vehicle is also at the highest point since the mid-2000s.
Transportation is a Necessity
The combination of high prices and high interest rates makes it a less than favorable time to buy a car. Unfortunately, having access to reliable transportation is necessary for most Americans, which means many people can’t choose when they enter the market. So if you’re searching for a car, doing your homework before walking into a dealership is more important than ever to secure the best possible deal.
Five Tips for Car Buying in a Tight Market
The good news is that it’s possible to be a smart car buyer, even under challenging conditions. It just takes a little more upfront work. Here are five tips for finding the best deal in the current market.
1. Determine Your Needs
The most important step you can take is to consider your transportation needs thoughtfully and create priorities around each. Will you need your car primarily for commuting, or is it more for family transportation? Is size and safety a priority, or do you need a more economical option? Do you need to use your vehicle for work, or will it only be for personal use? Answering these questions will help you determine what type of vehicle you need so you can begin narrowing your options.
2. Set a Purchase Budget
Once you’ve decided what type of car you need to buy, it’s time to set a budget. Many factors influence a car’s price, including make, model, mileage and age. By establishing a price range, you can begin comparing your available options that best suit your needs. There are several free online financial tools that can help you get a general idea of your purchasing power.
3. Consider Long-Term Costs
A car’s purchase price is only one aspect of its overall cost. As you consider your next purchase, you must also consider factors such as maintenance, fuel, insurance, repairs and fees. For example, the cost of owning a ten-year-old BMW sedan with 75,000 miles could be vastly different than a similar Toyota. As you’re accounting for these costs, use at least a three-year ownership time frame.
4. Compare Prices and Negotiate
At this point, you should have a narrow list of potential vehicles, including your preferred age and mileage ranges. Many different online tools allow you to compare similar used cars side-by-side. This strategy is an excellent way to learn about the used car market in your area and uncover potential deals. Most new car dealerships also publish their car prices online, so you can compare options between dealerships.
Once you’ve found a vehicle that meets your conditions, you can attempt to negotiate the final purchase price. Under the old car shopping model, the goal was to secure a price as close as possible to the dealer’s invoice price. However, it’s not uncommon for dealers to now add a market adjustment to the sticker price, so that goal may no longer be attainable. Instead, your ability to negotiate the sale price will depend on the dealership you’re working with and the type of car you want to buy.
5. Choose Your Financing Terms
After you and the dealer have agreed on a purchase price, it’s time to talk about your financing package, which includes four different factors: the interest rate, repayment term, monthly payment and down payment.
- The interest rate your dealer offers is determined by your credit score. People with lower credit scores generally pay higher interest rates than people with high scores. Consequently, you typically cannot negotiate the rate your dealer offers. However, you can shop around for alternative financing options because lenders often use different platforms and rate structures.
- The term you select for your financing period is also critical. Lenders typically offer 48 and 72-month repayment periods. Although, it is possible to extend that term to 84 months or beyond.
- While there are advantages to a more extended payment period—like smaller monthly payments—you should consider whether the vehicle you’re financing will make it through your lending term. After all, owing money on a car that no longer runs is a road to financial ruin.
- One great way to reduce your monthly obligation and reduce your repayment period is to make a significant cash down payment when you purchase.
Generally speaking, you’ll place yourself at greater financial risk when you buy a car with no down payment over a long repayment period. So carefully consider all these factors before agreeing to a finance package.
The Buy Here, Pay Here Option
It’s important to note that unless you’re buying a car with cash, your credit score will be a critical consideration for lenders as they assemble your financing package. Buyers with good credit will have more options for choosing vehicle financing. However, customers with no credit history or past credit challenges often struggle to secure financing at all. That’s where buy here, pay here dealerships come in.
Unlike traditional dealerships, which sell cars and provide financing options through outside lenders, buy here, pay here dealerships sell and finance vehicles in-house. These dealerships work primarily with consumers who have struggled to obtain financing due to credit problems, no credit history or even bankruptcy.
If you’re shopping for a new vehicle at a buy here, pay here dealership, you should also do your homework before shopping. Some dealerships that work with challenged buyers are predatory, selling low-quality vehicles at inflated prices because they know their customers don’t have many choices. So before you start shopping, here are a few factors to consider:
- The best buy here, pay here dealerships understand that they will be successful if their customers are successful. So your dealer should be selling you a reliable car at a price you can afford.
- Great buy here, pay here dealers offer services beyond the car purchase, which could include maintenance, repair and even insurance coverage.
- Your buy here, pay here dealer should also report your payment history to the credit bureaus so you can begin repairing your credit.
Once you’ve chosen a buy here, pay here dealer, be sure you understand the purchase package they offer. If something seems unusual, don’t sign the purchase agreement until you can get outside advice or compare your options with similar dealers.
Make Car Purchases with Careful Consideration
Regardless of where you buy your next vehicle, making careful decisions about your needs, budget and financing will set you on the best path to success. Vehicles are among the most significant purchases most people will ever make, so it’s wise to take some time before making these big decisions.
Being a careful consumer is even more critical as car buyers navigate high prices and high interest rates. If your current vehicle is in good shape, now might not be the best time to buy. If you need a new car and have a solid credit history, shop around to compare vehicle prices and financing packages. If you’ve struggled in the past to obtain financing, look for buy here, pay here dealers that want to help you succeed. As long as you’re paying attention to the details and making decisions with a long-term view, you can ride the rollercoaster and find an affordable and reliable vehicle that fits all your needs.