Imagine buying your first car during the worst auto market in recent memory.
Inventory shortages and rising prices began with the pandemic-induced shortage of computer chips in 2021. In May this year, the supply of new vehicles available for purchase was around 1.1 million – that’s about 1.7 million less than in 2020 – according to automotive market and data company Cox Automotive. The average transaction price jumped to $47,148, up more than $5,000 from a year ago, as most buyers paid more than the list price. The average used car price remained near record highs at $28,312, with some models fetching higher prices than new.
First-time car buyers have long been guided by the traditions of the Internet and the experiences of friends and relatives. What’s it like to shop when these rules no longer apply?
For Kevin Nguyen, that meant buying his first car when traditional car-buying advice was gone. Nguyen – whose work as a data analyst has taken him from using public transport in Toronto, Canada, to needing 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: “The cars were more expensive than their original purchase price, even though they were used with thousands of miles over several years.” Nguyen said it was a rather expensive option and buying new wasn’t much better. “The dealers had no idea when they would get the inventory. I was quoted in late summer 2022 when I asked the question 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.
Don’t miss: Car quality is down: brands with the most and least complaints, study finds
Prepare before you shop
With the current car shortage putting dealerships in the driver’s seat, it’s important to arm yourself with knowledge. Nguyen, Johnson and Morris have all used online car retailers like CarMax KMX,
and Vroom VRM,
to research car prices and different makes and models before approaching a dealership.
Nguyen used online retailers to “get a general idea of car prices”. Using this benchmark price, he then contacted local dealerships to see what inventory 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 through obtaining a degree in physical therapy and a doctorate. took a detour when the vehicle developed mechanical problems. Needing a car right away, he used online sites to quickly research the must-have features, fuel efficiency and safety ratings of his next car.
For Morris, it was time to replace his old car after finishing college and finding a job at a strategic communications company. On the advice of his father, Morris used the CarGurus car-buying app as well as other online sites. In fact, she credits the app for helping her find the 2017 Ford F,
Edge Titanium which she purchased from a local dealership in May.
After locating the car, she went back online to confirm she was getting a good deal. She says: “Lots of other Fords like this, their miles were way higher and the price was way higher, even though it was pretty much the same car. So we quickly found out that this was definitely the best deal we could find.
Lily: These are the cars that cost the most and the least to insure
Make your financial plans
Another important aspect of preparation is setting a budget so you can determine a price range and avoid overspending. Johnson, who took out her first car loan, says the financial aspect of buying a car was the most difficult.
Even though he had saved up to buy a car after graduation, he still wasn’t ready to buy one. He had to make some financial adjustments to fit paying for a car into his budget, like trading a gym membership for exercising in his apartment.
Experts recommend spending less than 10% of your take home pay on monthly car payments and less than 15% to 20% on overall car expenses, including gas, insurance, and maintenance. A car affordability calculator can help you calculate these numbers.
To reduce the amount he needed to borrow and get a better rate, Johnson used the money he had saved and traded into his existing car to make a large down payment. At the dealer’s suggestion, he made repairs to his existing car to increase the trade-in value.
If possible, car buyers should aim to put 20% of the purchase price for a new car and 10% for a used car.
Johnson financed through the dealership and felt he got a good interest rate on the loan, 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 bit frustrated and really needed a car.”
Getting pre-approved for a car loan before shopping around is always a good idea. Most credit unions and banks offer pre-approved auto loans, and many credit unions have first-time car buyer programs to help qualify those without an extensive credit history. Taking this pre-approved loan from the dealer gives them a rate to beat. For first-time car buyers, lining up a loan co-signer can also help get approval and a lower interest rate.
Related: As car prices keep rising, these two electric cars just got a big price drop
In this car market, be fast and flexible
Being able to move fast enough to get a car before someone else was a challenge all three car buyers said they faced. The research they did beforehand and advice from parents or other more experienced car buyers increased their comfort level in making quick decisions. Also, being flexible was essential.
Johnson’s first choice was a Toyota TM,
RAV4, but after finding none available within a two-hour drive, he began visiting local dealerships of other brands with his must-have list in mind. He ended up buying a 2022 Hyundai Kona.
“Once I drove the Kona, it did everything I wanted in the RAV4,” he says. “I never thought of Hyundai as a brand. So now it’s six months later, and I’m still enjoying the vehicle to the fullest. I don’t know if I would have enjoyed the RAV4 as much as my vehicle now.
After discovering that local dealerships wouldn’t have the brands he wanted for at least six months, Nguyen went back online to buy a 2020 Hyundai Elantra SE.
“I went back to online websites like Carvana and CarMax and visited the website nearly 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 issues, with a spotless inspection and only 10,500 miles, so I was very happy.
Don’t miss: These cars are cute and cheap, and no one else has them – how you can get one
Nguyen’s final advice on finding a car: “If there’s a deal, then go for it. Being indecisive will cost you dearly, because someone else will pick it up immediately.
More from NerdWallet
Shannon Bradley writes for NerdWallet. Email: email@example.com.