Personal Finance

Car shoppers could land good deals with Memorial Day weekend sales push

Key Points
  • Despite higher auto prices and rising interest rates, which makes financing a vehicle more expensive, May car sales are expected be 3.5 percent higher than a year ago.
  • Driving itself is getting more expensive as well. Gas prices are at a four-year high, with a gallon averaging $2.96 nationally, compared with $2.37 a year ago.
  • Before heading to the dealership, there are ways to prepare for your purchase so you can get the best deal.

If you're in the market for a new vehicle, you might want to fit in a trip to the dealership between parades and cookouts over Memorial Day weekend.

The three-day holiday marks the second big sales push so far this year. Buyers are likely to find a good selection of 2018 models that dealerships will be eager to unload to make way for 2019 versions that start arriving in the summer.

"The weekend kicks off the summer selling season, so it's a big deal for dealerships," said Matt Jones, senior consumer advice editor for Edmunds. "The discounts won't be the deepest of the year, but they are still really good. Later in the year, discounts are greater but there's less inventory."

Patrick T. Fallon | Bloomberg | Getty Images

Despite rising interest rates and overall higher auto prices, consumers continue stretching their budgets to get in a new car. May sales are expected to be 16 percent higher than last month — when the pace of transactions dropped — and 3.5 percent higher than a year ago, according to Edmunds.

The average price paid for a new vehicle is about $32,500, recent data from J.D. Power show. A year ago, it was $31,400.

The average interest rate for a new-car loan was 5.6 percent in April, up from 5 percent a year ago, according to Edmunds. On a used car, the interest rate is 8.3 percent, up from 7.7 percent in April 2017.

Average new-car financing costs

Loan aspect April 2018 April 2017 Apr 2013
Term69.2 months69.1 months65.5 months
Monthly payment$535 $509 $463
Amount financed$31,318 $30,315 $26,679
Down payment$3,911 $3,770 $3,494

Those rates are likely headed higher. After raising a key short-term interest rate in March that affects consumer loans, the Federal Reserve is expected to increase rates at least two more times this year. The March increase marked the fourth boost in 12 months.

On top of those purchasing costs, driving itself is getting more expensive. Gas prices are at a four-year high, with a national average of $2.96, compared with $2.37 a year ago, according to AAA.

With consumer preferences shifting over the last several years to SUVs and pickup trucks — both of which generally are less fuel efficient than cars — there's been speculation about whether higher prices at the pump will slow sales of those larger and generally higher-priced options.

"In the near term, rising gas prices aren't deterring sales since consumer confidence continues to soar at an all-time high," said Jeremy Acevedo, manager of industry analysis at Edmunds. Consumer confidence hit a 14-year high in March and remains strong.

Average used-car financing costs

Loan aspect April 2018 April 2017 April 2013
Term67.1 months67 months64.2 months
Monthly payment$398 $386 $866
Amount financed$21,620 $21,330 $19,357
Interest rate8.3%7.7%8%
Down payment$2,633 $2,531 $2,292

In fact, about 67 percent of vehicles sold in May are forecast to be trucks and SUVs, according to Edmunds.

Nevertheless, if gas prices continue rising, car shoppers could begin factoring in what lower fuel efficiency means for their wallets.

As for incentives, the average in April was about $3,700, which was $187 higher than a year earlier, according to J.D. Power's most recent data. Generally speaking, the larger discounts can be found on trucks and SUVs.

Meanwhile, if you're considering a used car, there are plenty hitting dealer lots. In fact, an estimated 3.9 million vehicles are coming off their leases this year, according to Cox Automotive. That means many dealers will be eager to unload them.

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Before you make your way to the dealership, there are a few things you should do to find the best deal available and prepare for your purchase.

Assess the market

It's worthwhile to do some research online first. If you have any flexibility, you might discover a great deal on a car similar to the one you were thinking about.

You also might find a difference in price among local dealerships on the same car. Or, you might find a dealership that has a special deal going — say, picking up the sales tax on your purchase — that could reduce your overall cost.

Get preapproved financing

Unless paying with cash, you should get preapproved for a loan from a bank or credit union. While there's no obligation to use the preapproval, you'll at least be armed with a comparison when the dealership offers its loan terms.

"If what a dealer can offer beats your preapproval, then great," said Edmunds' Jones. "If not, you still have the preapproved loan with the better interest rate."

Generally speaking, the better your credit score, the better terms you'll get.

The Amazon-ification of car buying

For those with excellent credit, zero percent financing could be available on certain makes and models when you use the dealer's financing. For instance, the 2018 Dodge Durango — its list price starts around $30,000 — can come with a no-interest loan and cash back, depending on where you live.

Or, the 2018 Chevy Cruze, which starts around $17,000, comes with zero percent financing on a 72-month loan for buyers who qualify.

Collect key documents

Make sure you're armed with all the documents you'll need to complete a sale: your driver's license, the title and registration for your existing car (if you're trading it in) and proof of insurance.

If you are making a down payment, call the dealership ahead of time to find out what forms of payment are accepted.

Beware the add-ons

Once you get to the nitty-gritty of a deal, you might be offered an optional feature or service contract, such as an extended warranty.

Make sure you do the math before you sign on the dotted line — not only to understand the extra monthly cost, but also to know what you would pay over the life of the loan for the add-on.