Car Shopping During Black Friday

This is the season to save money on a new car. If you’re making the big purchase, experts will warn you to scoop up Black Friday sales and holiday offers while they last.

Car shoppers benefit from two things this year: excess inventory and cheaper financing. Older models from 2018 and 2019 are accumulating on dealer lots. Which means higher prices for shoppers. You can take advantage of sales offers as dealerships clear up stock to make room for newer models.

There is a large inventory of the outgoing model-year vehicles. Approximately 27 per cent of all vehicles sold in October were 2020 models, down from October 2016 when approximately 37 per cent of all vehicles sold were 2017 models, according to Edmunds car-purchasing site. Car dealers struggled this summer to sell their 2018 inventory to make room for 2020 cars. Approximately 3.5 percent of all July car sales were 2018 vehicles, the largest share of that month’s sales for previous year’s models since at least 2005, J.D. Power has been identified.

Earlier this month, Lexus launched its “December to Remember” event, that offers incentives through Jan. 2. Additionally, General Motors is offering a 0 per cent annual percentage rate for 2018 and 2019 Chevrolet models during Black Friday, or no 90-day monthly payments if you find the company’s lending arm, GM Financial, according to Kelley Blue Book.

Financing Factors
Lower rates are giving back to car buyers. In the second half of 2019, auto-loan rates, which often match the federal funds rate, have decreased. The interest rate on a 48-month new car loan averaged 5.27% in the third quarter, down from 5.35% in the second quarter, according to the Federal Reserve.

The central bank has lowered its benchmark interest rate from 1.5 per cent to 1.75 per cent this year to help cushion the economy. These cuts have reduced borrowing costs for a number of consumer debts, from car loans to mortgages and credit cards.

The Fed has also suggested no need–for now –to further rising borrowing costs. Car loan rates are likely to increase as borrowing costs rise along the road, experts warn, which is why some auto shoppers are now looking to purchase a new vehicle.

New Or Used?
To be sure, this year’s average cost of owning a new vehicle has reached an all-time high. Finance costs for new car purchases rose by 24 per cent in 2019, according to AAA, bringing the average annual vehicle ownership expense to $9,282 or $773.50 per month.

Shoppers feeling the pinch of rising new car prices might turn to the used car market, analysts say. In the second quarter, car shoppers could have saved an average of $14,443 if they purchased a three-year-old used vehicle instead of a new version, according to Edmunds.

Do Your Homework
The best practice, according to experts, is to get pre-approved for a loan before going to a dealership. While a dealer might offer better terms, you should still have a backup plan.

“It doesn’t hurt to get pre-approved or look at financing options in advance,” said Erin Klepaski the Executive Director of Strategic Alliances at Ally Financial.

You may have a financing offer, but there are several variables to consider, including whether you are leasing or buying a new or used vehicle. If you’re looking to lease your next car, experts say you’re likely to get a better offer through the dealership.

“Usually, you can’t get pre-approved by a bank in advance for a loan,” Klepaski said. “The dealer is probably going to help you with the payment.”

Buying a used car is typically the most cost-effective alternative because after you’ve paid off the loan you get to keep it. Leasing allows you the choice to upgrade to a newer model if you need the latest features and gadgets.

Experts suggest waiting until the end of the month, quarter or year for a promising offer, as dealerships try to meet sales quotas. Year-end offers could even be extended to next year due to a stock surplus, analysts say.

“Dealers are looking to move a lot of stock in December to reach their yearly targets,” said Tendayi Kapfidze, Chief Economist at LendingTree. If they promote aggressively, then prices can be more beneficial for buyers than other months.