Inventories of used cars, the result of an increase in consumers turning leased cars in to dealers when their lease terms end, are also rising, providing competition for new car sales. A new car now sits on a dealer lot for an average of 74 days before being sold, the most since July 2009, when it was 80 days, according to JD Power & Associates.
“Consumers can use that to their advantage,” said Jill Gonzalez, an analyst at the financial website WalletHub.
The shift to something more like a buyer’s market is a plus for consumers because new cars have generally become quite expensive. According to data from Experian Automotive, the average new vehicle loan reached a record $30,534 in the year’s first quarter, and the average monthly payment on a new vehicle loan reached $509, also a record. The high prices have pushed buyers to extend the terms of car loans to five and even eight years, increasing overall interest costs.
For the many buyers who need to finance a car purchase, rates for new cars are still favorable, according to an analysis by WalletHub. For new cars, the average rate for manufacturer financing on a three-year auto loan is 1.74 percent, the lowest since the end of last year.
That means consumers shopping for a new vehicle for themselves, or perhaps for one a student could drive to school, may be able to find favorable terms on both the purchase price and the cost of financing.
“There’s definitely going to be some deals available,” said Claes Bell, an analyst with Bankrate.com. “Slowing sales and rising inventory are good for consumers.”
Still, consumers may have to hunt for the best financing deals in the coming weeks. An Edmunds analysis found that automakers were a bit stingier with zero-percent offers in August than they were a year ago.
Labor Day weekend is traditionally a busy weekend for car shopping, and dealers will probably be offering cash-back incentives and low-interest rate financing, to attract buyers.
But consumers should be cautious when shopping on long holiday weekends. Zero-percent offers apply only to those who have excellent credit, so you may be tempted to sign up for a loan that is more expensive than you’d like. And sale lots are likely to be crowded with other shoppers, Mr. Montoya said, meaning you will probably have to wait longer to take a test drive.
If you must shop on the weekend, Edmunds advises that you do as much research as possible ahead of time, and that you call ahead to schedule a test drive first thing in the morning to avoid the crowds.
Keep in mind that some offers will probably extend past the holiday, so you could spend time over the weekend researching prices and schedule a visit after the crowds have dispersed. Several carmakers are offering special deals and discounts this year that last through Tuesday.
Here are some questions and answers about car shopping:
Q. Should I buy a new or used car for a teenage driver?
Families have traditionally opted for used cars for new drivers because they were cheaper and less pristine, so getting a few dents was not a big deal. But these days, Mr. Montoya said, newer cars come with more safety features that can help protect teenagers who lack experience behind the wheel. A compromise might be a used car that’s just a year or two old, which will cost less while still having up-to-date safety features. Or, he said, a new-car lease may be worth considering if safety is paramount, since interest rates on new-car leases may be favorable, helping to keep monthly payments low.
Q. Where is the best place to get financing for my car?
Car manufacturers tend to offer the lowest rates, followed by credit unions, WalletHub’s analysis found, while rates at national and local banks tended to be higher. So it makes sense to shop around, Ms. Gonzalez said.
Q. What if my credit score doesn’t qualify me for zero-percent financing?
Buyers should not be immediately discouraged if they are not approved for an interest-free loan, Ms. Gonzalez said. If you don’t qualify for zero-percent financing for three years, for instance, ask if you can pay no interest for just one year. “Those terms are negotiable,” she said.
If your credit really needs improvement, however, consider waiting to buy a car if you can, she advised. Focus on saving as much cash as you can for the six months for a down payment, and paying off other debt to help raise your credit rating, to help you qualify for a better interest rate.