It’s no secret that the new and used car market is insane nowadays. Computer chip and inventory shortages have made it a seller’s market, but that doesn’t mean that you’re out of luck as a buyer. Ari Janessian – an auto broker with NegotiationGuides.com – recently released a video talking about how to tell if you’re getting a terrible car deal in 2022. Here are a few tips and questions that you should ask yourself before buying a new or used car right now.
Are you shopping for a new or used car?
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If you’re currently shopping for a used car, then Janessian says that “chances are that you’re already getting a terrible deal.” He says this because the inflation rate on used cars is around 37% compared to 12% on new cars. So if you’re buying a new car at or around MSRP, then you’re doing pretty well, but if you’re buying a used car then you may be “getting robbed completely,” according to Janessian.
That doesn’t mean that all is lost if you’re shopping for a used car, though. One way to check is to log onto CarGurus and look at cars identical to the one that you’re interested in. Check the price difference between the car that you’re looking at versus others for sale in the same area. “Try to get an accurate picture of what that particular vehicle should actually be selling for,” advises Janessian.
Is the new vehicle that you’re interested in selling at or over MSRP?
In these strange car buying times, it’s almost normal to pay over MSRP for some cars, however, that shouldn’t always be the case. If a new car that you’re interested in is selling for over MSRP, then whether or not it’s a terrible deal will depend on how much over sticker it is selling for. That doesn’t mean that you should shell out thousands of dollars over the sticker price, instead, look at what the car’s residual value is.
What that means is that in three years, if the car can keep around 60 to 70% of its original value, then it could be worth spending a little more than the sticker price for it. However, if the car only holds around 50% of its original value after three years, then you may want to skip it altogether. The reason for this is that paying over the car’s original value won’t make sense if the car isn’t worth much only three years down the road. In that case, you could be losing out on a lot of money on the front end and the back end of the deal.
“If you’re looking at a vehicle that’s going lose 50% of its value over the next few years, but the dealership is trying to charge you 10-20% over MSRP for it, stay away from that vehicle,” Janessian says.
To see what kind of residual values that certain new cars have, check out CarEdge.com. There’s a handy calculator that will tell you how much the car that you’re interested in will lose over the next few years.
Is the price of the used car that you’re looking at close to the price of a new one?
If you are shopping for a used car, then pricing is obviously very important during these trying times. One way to know if you’re getting a good price on the used car that you want is to compare its price to that of a new model. If the new model only costs a few thousand dollars more than a used one, then you should go with the new one because it will technically be a better deal all around.
“If there’s a price differential of around $3,000 to $5,000 and the used car is 2 or 3 years old, keep in mind that it’s going to run out of warranty,” Janessian said. “Apple-to-apples, if we’re talking new versus used and the prices are very close, always go with new because of the warranty and better financing rates.”
If the vehicle that you’re trading is worth less than the current market value
Lastly, if you’re planning to trade in a vehicle, then it’s a great time to do so as dealers are paying top dollar to add cars to their inventories. One way to make sure that you’re getting the most money for your trade is to see what dealers are selling the same car for. For example, if you have a Honda Accord that is selling on dealer lots for $25,000, but the dealer only offers you $15,000, don’t take it.
There shouldn’t be any reason that you shouldn’t get close to the retail value of your car in this current market. Anything less would be considered a terrible deal.