With the economic turmoil and stay-at-home orders, can you buy a car, and should you?
Events are unfolding at a rapid pace, as automakers keep plants shut down to protect their employees and respond to plunging demand. According to J.D. Power, March 2020 sales were off by 39% compared to 2019. Sales for the first part of April are off 55% from the research company’s pre-virus forecast.
Is Now a Good Time to Buy a Car?
If you need to buy a car, can afford one, are secure in your job, and can find a model that meets your needs, the only thing that should stop you from buying are stay-at-home orders that don’t allow dealerships to operate.
As with a car purchase in normal times, you want to be smart about how you buy a car and get your financing. Car sales plummeted in March, so automakers and their dealers are working hard to attract buyers. Many have rolled out generous incentives and deferred financing. If you can afford it, the next several months may become an excellent time to get a great deal from a dealer eager to make sales.
Is it a Good Time to Wait?
If you work in an industry that is susceptible to a coronavirus-induced downturn that could lead to layoffs or reduced hours, you should carefully consider whether it’s a good idea to lock yourself into a car loan or lease. It will likely affect supply and demand in nearly every corner of the economy. Waiting for a few months to see if things settle down might save you from getting into a loan or lease, then missing payments or defaulting due to a job loss.
Though demand is low, your options may be limited to just a dealer or two who are able to keep the doors open, or have fully online purchasing procedures and at-home delivery options.
Most car deals are announced at the beginning of each month, so we’ll soon have a good idea of what automakers are offering to boost sales and leasing. Several automakers, including Ford, Fiat Chrysler Automobiles (FCA), and General Motors, have already rolled out long-term zero percent financing offers. Many automakers are offering payment deferral programs, so you won’t have to start paying for your car until several months after you’ve taken delivery.
Is it a Good Time to Lease a Car?
There may be some great lease deals announced in the coming months, as automakers and their dealers do whatever they can to bolster sales. Most of the new car deals rolled out for the month of April revolved around zero-percent financing, with relatively few spectacular lease deals advertised.
Unless your job is on rock-solid footing, you should not lease a car until the economy is back on track. With a car purchase, you can sell the vehicle if you need to satisfy the loan. The same is not true of a car lease. Defaulting on a lease can destroy your credit for years, making it impossible to lease another car and more expensive to buy one.
Is it a Good Time to Buy a Used Car?
Now is a good time to buy a used car, but the weeks and months ahead will likely be better. The effects of lower demand for both new and used cars will be reflected with sellers willing to accept significantly less than they could have demanded before the virus began to dominate the news.
Dealers aren’t getting many trade-ins right now, and lease returns aren’t coming back to dealerships in great numbers, so there’s no steady stream of used cars to sell. However, the used car market is still likely to be flooded with inventory. There’s simply little demand for used cars already on the lots. Adding to the glut of inventory will be rental car companies that need cash more than cars right now, as consumers have largely stopped traveling. They will likely be dumping thousands of cars into used vehicle inventories.
There are many good reasons to buy a used car rather than a new car right now. Topping the list is price. Used cars are much cheaper than new cars, and their lower prices lead to smaller, more affordable loans and less chance you’ll be underwater on your financing.
How the Coronavirus Is Impacting Car Deals
Experts expect April’s sales to be even worse than March sales. You can already take advantage of several generous financing deals, and there will likely be many more in the coming months. Some automakers are offering zero percent financing deals for as long as seven years.
Taking advantage of a car deal can save you thousands of dollars off the cost of the vehicle, or dramatically reduce the amount of interest you have to pay on your car loan. Ford is offering a deal where they pay three months of car payments for buyers, and defer three more months of payments.
Many carmakers are offering to defer payments for as many as 180 days, depending on the manufacturer. A loan payment deferral program allows buyers to put off making the first payments on their loans, with no late fees and no negative impact on their credit. Not all buyers will qualify for a deferral, as the lender will consider their credit score and other information in their loan applications. Unless the interest rate on the loan is zero percent, you shouldn’t take the deferral unless you really need to, as interest will accrue on the loan and you’ll pay more in the long run.
If you need a first-payment deferral to afford a new car, now is probably not the right time for you to buy a vehicle. Unless you’re 100% sure you’ll be able to make your payments when the deferral period ends, you can set yourself up for serious financial pain and long-term damage to your credit score.
Hyundai and Volkswagen are offering job-loss protection programs, which will pay for as many as six payments for buyers who lose their job due to the coronavirus pandemic.
With continuing plant closures, deals will likely be hit and miss, with excellent deals on some models and shortages of others. It won’t just depend on where the car is produced – it will also depend on the sources of all of its parts.
The best way to get a low interest rate is by comparison-shopping at several lenders and getting preapproved for a car loan before you head to the dealership. Different lenders will lower their interest rates at different times, so it’s a good idea to take a broad look at the financing marketplace. It's never a good idea to start shopping at dealers without a preapproved loan in hand. They won't have any incentive to give you a good deal on financing if they don't have an offer to beat.
Will There be a Shortage of Cars to Buy or Lease?
It is increasingly likely that supply chain disruptions and plant closures will lead to a shortage of some vehicles sold in America. Those shortages will likely be offset by plunging demand, as consumers stay out of showrooms. The U.S. auto industry has nearly ground to a halt and any restart will take a long time. The pandemic will affect both production launches and debuts of many new models.
Several automakers are converting facilities to produce vital medical supplies. Once the services of those plants are no longer needed, it will take time to shift the plants and people back to vehicle and vehicle component manufacturing. During a year where electric and electrified car sales were expected to accelerate, they will likely tumble, along with the rest of the auto market.
Do Your Research Online
With all of the resources available on the internet, there’s little that still has to be done in-person at the dealership or lender. You can comparison shop for financing and fill out loan applications online. In some cases, you can sign the loan documents electronically and have them transfer the funds directly to the dealership.
You can also do much of your car shopping online. Once you have an idea about the car you want, you can start contacting the internet sales department of dealerships. You can see their inventory online and negotiate the price of a vehicle by email or phone. If you agree on a deal, they can have the paperwork ready so you can minimize – or even eliminate – your time in the showroom.
Home Delivery Options
Not all dealerships will deliver directly to your home, but it’s a good idea to ask if it’s possible. Though not all dealers participate, many Chevrolet, Buick, GMC, and Cadillac dealers will deliver cars to your home or office. Ford has announced that more than 75% of their dealers are now able to deliver vehicles to your door.
Used car retailers CarMax, Vroom, and Carvana offer home delivery programs for preowned vehicles. You can complete all of the purchase and financing paperwork online, and the companies will deliver the vehicle to a place of your choice or curbside delivery at a dealership. Customers complete the process online and can test drive their chosen used vehicle without a dealer representative in the car.
What to Do if Your Car Lease Is Expiring?
If your lease is nearing its end, you want to contact your leasing company to discuss your options. Some automakers are accepting returns through their service departments, which are considered essential and are remaining open in most areas. Others will come to your house to pick up the car. Most are offering lease extensions.
Can You Extend Your Car Lease?
Many automakers are offering lease extensions to get customers through the worst of the pandemic. General Motors will automatically extend your lease for one month if you do not return your vehicle within 10 days of your original termination date. The extension does not add any miles to your mileage allowance.
Many Leasing Companies Are Deferring Payments
The majority of automakers, and their leasing arms, are deferring payments on current leases.
It’s essential you reach out to your leasing company before you miss a payment. Doing so will help protect your credit score, save you from a late fee, and give your leasing company an opportunity to help. It’s more difficult for them to help you when you’re already behind on your payments.
Different carmakers and leasing companies are offering varying amounts of payment relief. Don’t assume any offers you see advertised from one brand will be mirrored by your leasing company.
Is a Lease-to-Buy Option a Good Idea Now?
Depending on market conditions, the stated price in the lease can be more or less than the car’s actual value at the end of the lease. If the price stated in your contract is much lower than the market price, buying your leased car is a good deal. If it’s higher, purchasing the car is more expensive than buying a similar car on the used car market.
Before you consider buying your leased car, you’ll want to look at what similar used cars are selling for in the marketplace to see if you can buy one for less.
Excerpted from U.S. News and World Report at https://cars.usnews.com/cars-trucks/coronavirus-and-cars
Photo by Torsten Dettlaff from Pexels